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Coty Inc Class A COTY

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Morningstar’s Analysis

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We Like Changes Afoot at No-Moat Coty, Although We Don't Care for Stock's Valuation

Analyst Note

| Rebecca Scheuneman, CFA |

We are increasing our fair value estimate for no-moat Coty, which had been under review, to $8.80 per share from $8 after digesting the strategy management laid out at its Nov. 18 investor day. We’re increasing our long-term organic sales forecast to 6.5% annually, at the low end of Coty’s 6%-8% guidance but above our previous 3%-4% projection. Coty’s sales growth should accelerate as it increases its revenue mix to faster-growing markets such as skincare, prestige makeup, China, and e-commerce. But we think sizable exposure to slower-growing mass beauty (41% of fiscal 2021 sales) will make it difficult for Coty to achieve growth at the middle to upper end of its guidance.

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Company Profile

Business Description

Coty is a global beauty company that sells fragrances (58% of fiscal 2021 revenue), color cosmetics (29%), and skin/body care (13%). The firm licenses brands such as Calvin Klein, Hugo Boss, Gucci, Burberry, and Davidoff for its prestige portfolio. Coty’s most popular color cosmetic brands are CoverGirl, Max Factor, Rimmel, Sally Hansen, and Kylie. Coty also holds a minority stake in a salon and retail haircare business, including brands Wella, Clairol, OPI, and GHD. Francois Coty founded the firm in 1904 and it remained private until its 2013 IPO. It had focused on prestige fragrances and nail salon brands until the 2016 acquisition of Procter & Gamble's beauty business. This nearly doubled the firm's revenue base, and launched it into mass-channel cosmetics and professional hair care.

350 Fifth Avenue
New York, NY, 10118
T +1 212 389-7300
Sector Consumer Defensive
Industry Household & Personal Products
Most Recent Earnings Sep 30, 2021
Fiscal Year End Jun 30, 2021
Stock Type Distressed
Employees 11,430