Avon Products, Inc. (AVP) Might Reach $25 In Two Years – Revlon Inc (REV), Tupperware Brands Corporation (TUP)

Page 1 of 2

In a previous article, I talked about PNC Financial Services (NYSE:PNC), a financial services firm that Brian Rogers, chairman and chief investment officer of T. Rowe Price, recommended at the 2013 Barron’s Roundtable. In this article, I will focus on another stock that he liked: Avon Products, Inc. (NYSE:AVP), the direct selling company with beauty and fashion-related products.

2012 Losses With High Amount of Debt

Avon, incorporated in 1916, is a global manufacturing and direct selling company in 65 countries and territories with three main product categories: Beauty (cosmetics, fragrances, skin care), Fashion (watches, jewelry, accessories) and Home (decorative products, housewares). The majority of Avon’s revenue, $7.64 billion, or 71.4% of the total revenue, was generated from the Beauty category. The Fashion category ranked second with $1.89 billion in revenue in 2012, while the Home category generated more than $1 billion in 2012 revenue. In terms of geography sales, Avon seemed to be quite strong in Latin America, with nearly $5 billion in 2012 sales. Europe, Middle East & Africa ranked second with $2.9 billion in sales.

Avon Products, Inc. (NYSE:AVP)In the full year 2012, the total revenue decreased by 5% to $10.7 billion. The operating profit experienced a significant decrease of 63% to $315 million. However, Avon generated losses of $42.5 million, or a loss of $0.10 per share. At first glance, investors might be scared of Avon’s high level of debt compared to its equity. As of December 2012, Avon Products, Inc. (NYSE:AVP) had $1.23 billion in total stockholders’ equity, $1.2 billion in cash, and nearly $3.2 billion in short and long-term debt. However, the low equity base was due to the fact that Avon has bought back a significant amount of its own shares over time. The treasury stock has reached $4.57 billion in December 2012.

$25 Per Share in the Next Two Years

Five years ago, Avon traded at around $40-$50 per share. At this time of writing, the company is trading at nearly $20.50 per share. At the beginning of 2012, Coty, a French beauty products maker, offered to acquire Avon at around $23.25 per share. Several months later, Coty made a second offer of $24.75 per share, valuing Avon at $10.7 billion. What makes Coty interested in Avon was Avon’s distribution abilities and good product R&D. However, as there was no response from Avon, Coty withdrew its bid. Brian Rogers thought that in a friendly transaction, Avon could have gotten a $25 – $26 per share offer. He was betting on Avon’s new CEO, Sheri McCoy, who had been working for Johnson & Johnson for 30 years. McCoy has already launched a big cost-cutting program to get the profit margin back to historical levels. Thus, it might earn $1.50 – $1.75 per share in the period of 2-4 years. If a consumer-products multiple was applied to Avon, Rogers thought Avon’s share price might reach $25 in two years.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!