Personal Products Stocks

Coty Inc Valuation – Initial Coverage $COTY

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – January 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Coty Inc (COTY) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Coty Inc. is a beauty company. The Company operates through four segments: Fragrances, Color Cosmetics, Skin & Body Care and Brazil Acquisition. Its fragrance products include a range of men’s and women’s products. Its fragrance brands include Calvin Klein, Marc Jacobs, Davidoff, Chloe, Balenciaga, Beyonce, Bottega Veneta, Miu Miu and Roberto Cavalli. Its color cosmetics products include lip, eye, nail and facial color products. The brands in its Color Cosmetics segment include Bourjois, Rimmel, Sally Hansen and OPI. Its skin & body care products include shower gels, deodorants, skin care and sun treatment products. Its skin & body care brands are adidas, Lancaster, philosophy and Playboy. The Company, through Hypermarcas S.A., engages in personal care and beauty business. The Brazil Acquisition segment includes product groupings, such as skin care, nail care, deodorants and hair care products. It operates in the Americas; Europe, the Middle East and Africa (EMEA), and Asia Pacific.

COTY Chart

COTY data by YCharts

[level-free]
To read the details of this valuation, you must be logged in as a premium member. If you are not a premium member, please consider becoming one.

Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

[/level-free]
[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of COTY – February 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,531,101,534 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.12 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 6233.33% Pass
6. Moderate PEmg Ratio PEmg < 20 37.89 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 25.99 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.12 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 18.73 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $0.51
MG Growth Estimate 15.00%
MG Value $19.71
Opinion Fairly Valued
MG Grade D
MG Value based on 3% Growth $7.42
MG Value based on 0% Growth $4.35
Market Implied Growth Rate 14.70%
Current Price $19.40
% of Intrinsic Value 98.42%

Coty Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years, the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $-0.06 in 2013 to an estimated $0.51 for 2017. This level of demonstrated earnings growth supports the market’s implied estimate of 14.7% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Coty Inc revealed the company was trading above its Graham Number of $3.71. The company pays a dividend of $0.28 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 37.89, which was above the industry average of 26.36. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-14.38.

Coty Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$14.38
Graham Number $3.71
PEmg 37.89
Current Ratio 1.12
PB Ratio 25.99
Current Dividend $0.28
Dividend Yield 1.42%
Number of Consecutive Years of Dividend Growth 2

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2016
Total Current Assets $2,107,700,000
Total Current Liabilities $1,882,900,000
Long-Term Debt $4,210,400,000
Total Assets $7,193,400,000
Intangible Assets $4,230,300,000
Total Liabilities $6,942,400,000
Shares Outstanding (Diluted Average) 336,300,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.82
Jun2016 $0.44
Jun2015 $0.64
Jun2014 -$0.26
Jun2013 $0.42
Jun2012 -$0.87
Jun2011 $0.18

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.51
Jun2016 $0.26
Jun2015 $0.12
Jun2014 -$0.12
Jun2013 -$0.06
Jun2012 -$0.24
Jun2011 $0.06

Recommended Reading:

Other ModernGraham posts about the company

None. This is the first time ModernGraham has covered the company.

Other ModernGraham posts about related companies

Signet Jewelers Ltd Valuation – Initial Coverage $SIG
Inter Parfums Inc Valuation – Initial Coverage $IPAR
Church & Dwight Co Inc Valuation – Initial Coverage $CHD
Service Corporation Intl Valuation – Initial Coverage $SCI
Avon Products Inc Valuation – July 2016 $AVP
Proctor & Gamble Co Valuation – July 2016 $PG
International Flavors & Fragrances Inc Valuation – June 2016 $IFF
Kimberly-Clark Corporation Valuation – June 2016 $KMB
Estee Lauder Companies Inc Valuation – May 2016 $EL
Colgate-Palmolive Co Valuation – January 2016 Update $CL

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Back To Top