Beauty and the Beast - COTY?!?!
Coty Inc. - COTY - $9 is a stock value investors should at least think about. Cosmetics have a reputation for being recession resistant. COTY was formed to buy some brands from P&G like Max Factor and Covergirl, and then licensed brands like Hugo Boss, Calvin Klein, and Burberry. COTY has some unique issues, let’s consider the positives and negatives:
Positives
COTY is 60% owned by a German conglomerate JAB Holding. This is the same group that owns part of Keurig Dr Pepper, and all of Einstein Bagels, Panera Bread, and several other consumer brands. To me this reduces any balance sheet risk because the “parent” can always bail out its traded subsidiaries. JAB has every interest in promoting the COTY stock price, so the shares can be used as an “acquisition currency”
The COTY CEO is Sue Nabi. She is former top executive from L’Oreal who sold her own skin care line to COTY in 2017 and now owns 30,000,000 shares.
COTY’s stock has gone down with relentless consistency for the past 10 years, yet it is the favorite idea of the analyst at ISI/Evercore. Over 90% of Wall Street’s ideas are stocks that have been outperforming. When a boutique firm stands up for an idea that has been a miserable market performer, I take some notice.
The pandemic, followed by de-stocking and re-stocking, has made it very difficult to predict earnings. Uncertainty leads to opportunity. The fiscal year ends in June, so COTY sells for about 15x the FY 2025 estimate.
COTY is less reliant on China, and skin care, than Estee Lauder.
COTY will tell you they have been “out-performing the industry” for the last 4 years, but the market has not noticed.
Negatives
COTY has grown by licensing brands. This can lead to disputes with partners. In COTY’s case this includes disputes with Kim Kardashian and Kylie Jenner.
Management has some vague ideas about cost cutting, but there is still work to be done.
JAB Holdings has had some bad press about ties between the founding Reimann family and certain historical German political parties. Do your own research.
COTY is trying to be multi-channel and multi-price point, not to mention multi-national. There is a little lack of focus.
I still have work to do on this idea, but it has some interesting characteristics.
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The Noxious Nine was 2-0 on Saturday. Nebraska cruised, and Tulsa had to hold on to barely cover. We are 4-1 for the season.