We're Adding More Shares of This Beauty Company
EPS prospects and resilient beauty spending pave the way for this addition.
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* Upbeat beauty market comments by Target and e.l.f. Beauty and accelerating EPS growth prospects have us adding more Coty shares.
* Moving past Coty’s slowest quarter of the year, EPS is poised to meaningfully outpace that for the S&P 500.
| Symbol | Transaction Type | #Shares Traded | Recent Price ($) | Shares Owned After Trade | % Portfolio |
|---|---|---|---|---|---|
COTY | Buy | 1,060 | 10.40 | 15,540 | 3.7 |
After you receive this Alert, we will buy 1,060 shares of Coty COTY at or near $10.40. Following the trade, COTY shares will account for roughly 3.7% of the portfolio.
Coty shares have been batted around lately amid renewed concerns over consumer spending. We are making this latest move following positive comments about the beauty market from Target TGT yesterday as well as better than first examined results and guidance from e.l.f. Beauty ELF.
The results from both showed consumers continued to spend on beauty products, something we attribute in part to their consumable nature as well as being an affordable luxury. Moreover, the beauty market outlook from both companies adds further support for the market, and reinforces our positive stance on COTY stocks as Coty’s turnaround efforts gain further momentum entering the seasonally strongest part of the year.
Elf handily beat March-quarter expectations and guided its top line for the coming year to climb more than 20% year over year. However, ELF shares were first tagged lower in aftermarket trading because the company’s fiscal 2025 EPS guidance of $3.20-$3.25 was below the market consensus of $3.56. When we dig into the company's guidance we find that bottom-line guidance was impacted by a higher-than-expected tax rate for the coming year — 20%-21% compared to 11% for the just completed fiscal 2024.
When we hunt for market insights and dynamics in a position’s customers, suppliers, and competitors, it’s better to focus on that company’s outlook above the operating profit line. In doing so, we find ELF management sees its revenue and EBITDA rising more than 20% in the coming year. Comparing that against other consumer spending prospects, it speaks to the ongoing health of beauty product spending.
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Through Coty’s shares, we will participate in that spending. We will also benefit from Coty’s strategy to expand its higher-margin Prestige business in fragrance, cosmetics, and skincare while improving the profitability for its Consumer Beauty segment. As that occurs, management's balance sheet reduction efforts drop more to the company’s bottom line.
We see this in the consensus EPS forecast of $0.49 for Coty over the next three quarters, which is up more than 27% compared to the $0.38 it generated during the calendar Q2-Q4 2023. It’s that EPS growth compared to the expected 11% EPS growth for the S&P 500 over the same periods that keeps us bullish on COTY and is leading us to add more to our position.
Our COTY price target remains $14. Because this trade is below our average cost basis, we will inch our panic point for the position down to $9 from $9.50.
At the time of publication, TheStreet pro Portfolio is long COTY.
(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)
