Personal Products Stocks

Coty Inc Valuation – March 2019 #COTY

Company Profile (excerpt from Reuters): Coty Inc., incorporated on January 20, 1995, is a beauty company. The Company operates through four segments: Fragrances, Color Cosmetics, Skin & Body Care and Brazil Acquisition. The Company sells products in each of its segments through retailers, including hypermarkets, supermarkets, independent and chain drug stores and pharmacies, upscale perfumeries, upscale and mid-tier department stores, nail salons, specialty retailers, duty-free shops and traditional food, drug and mass retailers. It sells a range of its products through travel retail sales channels, including duty-free shops, airlines, cruise lines and other tax-free zones. In addition, the Company sells its products through the Internet over its retail partners’ e-commerce sites and through online retailers, and the Company sells its philosophy products through philosophy-branded Websites and through direct marketing through television. The Company operates in the Americas (comprising North, Central and South America); Europe, the Middle East and Africa (EMEA), and Asia Pacific (comprising Asia and Australia).

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of COTY – March 2019

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 $8,372,757,379 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.96 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 185.71% Pass
6. Moderate PEmg Ratio PEmg < 20 -24.85 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.10 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 0.96 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -50.21 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 Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg -$0.45
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth -$6.51
MG Value based on 0% Growth -$3.81
Market Implied Growth Rate -16.68%
Current Price $11.15
% of Intrinsic Value N/A

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, and 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 or growth 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 Overvalued after seeing its EPSmg (normalized earnings) decline from $0.12 in 2015 to an estimated $-0.45 for 2019. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Coty Inc revealed the company was trading above its Graham Number of $0. The company pays a dividend of $0.5 per share, for a yield of 4.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was -24.85, which was below the industry average of 62.84, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.24.

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) -$13.24
Graham Number $0.00
PEmg -24.85
Current Ratio 0.96
PB Ratio 1.10
Current Dividend $0.50
Dividend Yield 4.48%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $3,714,400,000
Total Current Liabilities $3,865,000,000
Long-Term Debt $7,560,900,000
Total Assets $21,270,700,000
Intangible Assets $15,594,400,000
Total Liabilities $13,659,400,000
Shares Outstanding (Diluted Average) 751,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate -$1.07
Jun2018 -$0.23
Jun2017 -$0.66
Jun2016 $0.44
Jun2015 $0.64
Jun2014 -$0.26
Jun2013 $0.42
Jun2012 -$0.85
Jun2011 $0.00
Jun2010 $0.16

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.45
Jun2018 -$0.10
Jun2017 $0.02
Jun2016 $0.26
Jun2015 $0.12
Jun2014 -$0.13
Jun2013 -$0.06
Jun2012 -$0.25
Jun2011 $0.04
Jun2010 $0.05

Recommended Reading:

Other ModernGraham posts about the company

10 Most Overvalued Stocks of the S&P 500 – July 2018
Coty Inc Valuation – May 2018 $COTY
Coty Inc Valuation – Initial Coverage $COTY

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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.

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