TD Cowen analysts raised their rating on Coty (NYSE:COTY) from Market Perform to Outperform, increasing the price target from $13.00 to $16.00.

The analysts’ optimism stems from a recent fireside chat with Coty’s Chief Brands Officer of Consumer Beauty, Stefano Curti, and insights from Coty’s presentation at CAGNY. The upgrade is based on several key factors: the strong momentum in the fragrance sector, with Coty’s expertise in prestige fragrances (around 55% of sales) attracting new generations in varied ways; opportunities for diversification and premiumization across different geographies and product categories; the need for modernizing its Consumer Beauty segment, which represents 38% of fiscal 2023 sales and is recognized widely but requires updates in product offerings and marketing strategies; and Coty’s ability to generate significant cash flow, reducing debt leverage.

Additionally, the analysts pointed out Coty’s potential for margin expansion compared to peers, with current gross margins in the low 60% range versus competitors like L’Oréal and Estée Lauder in the low 70%. This potential is attributed to increased penetration in prestige products and Asia, along with ongoing cost-saving measures.

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