Coty, Inc. – Value Analysis (NYSE:COTY) : November 13, 2017

Capitalcube gives Coty, Inc. a score of 19.

Our analysis is based on comparing Coty, Inc. with the following peers – Procter & Gamble Company, Inter Parfums, Inc., Estee Lauder Companies Inc. Class A, Avon Products, Inc. and Revlon, Inc. Class A (PG-US, IPAR-US, EL-US, AVP-US and REV-US).

Investment Outlook

Coty, Inc. has a fundamental score of 19 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Considering peers, relative underperformance over the last year and the last month suggest a lagging position.
  • It trades at a lower Price/Book multiple (1.21) than its peer median (3.23).
  • COTY-US‘s EBITDA-based price multiple implies around peer median future growth. The market seems to expect the company to maintain the peer median EBITDA-based return it currently generates.
  • COTY-US‘s relatively low net margins and poor asset turns suggest a problematic operating strategy.
  • Changes in annual revenues (relative to peers) are better than the change in its earnings (relative to peers), implying the company is focused more on revenues.
  • COTY-US‘s return on assets currently and over the past five years has trailed the peer median and suggests the company might be operationally challenged relative to its peers.
  • The company’s median gross margin and relatively low pre-tax margin suggest high operating costs versus peers.
  • While COTY-US‘s revenues in recent years have grown faster than the peer median, the market gives the stock a Price/EBITDA ratio that is around peer median suggesting that the market has some questions about the company’s long-term strategy.
  • The company’s capital investment program and to-date returns suggest that the company is likely making big bets on the future.
  • COTY-US seems too levered to raise additional debt.

Access our research and ratings on Coty, Inc.

Leverage & Liquidity

COTY-US would seem to have a hard time raising additional debt.

  • With debt at a relatively high 33.74% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 23.70%), and relatively tight interest coverage level of 1.82x, COTY-US would have a hard time raising much additional debt. The company has a Constrained profile in terms of its ability to take on further debt.
  • All 5 peers for the company have an outstanding debt balance.

COTY-US has moved to a Limited Flexibility from a relatively high leverage profile at the recent year-end.

  • COTY-US‘s interest coverage is its lowest relative to the last five years and compares to a high of 7.07x in 2015.
  • The decrease in its interest coverage to 1.82x from 2.32x (in 2017) was also accompanied by a decrease in its peer median during this period to 11.71x from 12.90x.
  • Interest coverage rose 0.69 points relative to peers. It is also below the 2.50x coverage benchmark unlike the peer median.
  • COTY-US‘s debt-EV is greater than (but within one standard deviation of) its five-year average debt-EV of 31.37%.
  • Compared to 2017, debt-EV has remained relatively stable for both the company (33.74%) and the peer median (23.70%).

Access the detailed analysis for Coty, Inc.

Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Procter & Gamble Company 13.65 0.91 31.53 41.78
Inter Parfums, Inc. 7.84 3.39 39.08 96.66
Estee Lauder Companies Inc. Class A 9.61 1.75 21.39 51.77
Avon Products, Inc. 69.36 1.42 2.02 21.81
Revlon, Inc. Class A 66.5 1.25 0.6 -0.57
Coty Inc. Class A 33.74 1.08 1.82 -1.21
Peer Median 23.7 1.34 11.71 31.8
Best In Class 7.84 3.39 39.08 96.66

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Company Profile

Coty, Inc. engages in the manufacture of beauty and skin care products, fragrances, and color cosmetics. It operates through the following segments: Consumer Beauty, Luxury, and Professional Beauty. The Consumer Beauty segment offers color cosmetics, retail hair coloring and styling products, body care, and mass fragrances. The Luxury segment comprises of prestige fragrances, premium skincare, and premium cosmetics. The Professional Beauty segment focuses on servicing salon owners and salon professionals in hair and nail care. The company was founded by Francois Coty in 1904 and is headquartered in New York, NY.

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