What Happened?
Shares of beauty products company Coty (NYSE: COTY) jumped 1% in the afternoon session after it launched a review of its consumer beauty business, which could lead to a sale or spin-off of brands like CoverGirl.
The review focused on its $1.2 billion mass-market color cosmetics segment, which included brands such as CoverGirl, Rimmel, Sally Hansen, and Max Factor, along with its business in Brazil. Coty stated it was exploring a full range of options, including partnerships, divestitures, or spin-offs. This action was part of a larger plan to shift focus toward its more profitable, higher-margin fragrance business. To support this shift, the company also announced it would more closely integrate its Prestige Beauty and Mass Fragrance operations, which together accounted for 69% of its sales.
After the initial pop the shares cooled down to $4.05, up 1.1% from previous close.
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What Is The Market Telling Us
Coty’s shares are quite volatile and have had 18 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 20 days ago when the stock dropped 4.6% on the news that Berenberg downgraded the stock to Hold from Buy, citing concerns about a delayed sales growth recovery.
The investment firm also significantly cut its price target on the shares to $5.05 from $6.50. Berenberg's decision follows a period of underperformance for the stock and weaker-than-expected sales growth. The firm pointed to a weaker consumer outlook, inventory destocking, and potential headwinds from tariffs as reasons for its revised stance. The downgrade comes after Coty recently reported fourth-quarter results that missed earnings expectations, with a 9% year-over-year decline in like-for-like sales. The company's Prestige segment sales fell by 7%, while Consumer Beauty sales dropped by 12%. Reflecting these challenges, other analysts have also recently lowered their price targets for the beauty company.
Coty is down 41% since the beginning of the year, and at $4.05 per share, it is trading 56.9% below its 52-week high of $9.39 from September 2024. Investors who bought $1,000 worth of Coty’s shares 5 years ago would now be looking at an investment worth $1,500.
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