Coty Skincare Portfolio Plans 'Credible and Impressive' - Morgan Stanley

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By Sam Boughedda

Despite opening Thursday's session slightly higher, shares of Coty (NYSE:COTY) have declined in the early part of the session, down 1.9% at the time of writing.

COTY held an investor day at its R&D facility in Monaco, where its leaders demonstrated its skincare portfolio. The company raised its first-quarter organic sales and gross margin guidance and maintained its FY23 guidance due to uncertainty in the macroeconomic environment. Coty increased its first-quarter organic sales growth range to 8% to 9% from the previous 6% to 8%.

"We found COTY's plans in skin care credible and impressive, with Coty stressing its R&D capabilities, greater organizational focus, and white space opportunity, in order to drive its goal of doubling its Skincare revenue to $500-$600M over a 3 year time frame from FY22-25," said a Morgan Stanley analyst, who kept an Equal-Weight rating and $9 price target on the stock.

"We are raising our Q1 organic sales/EBITDA estimates to +9% growth from +6% and EBITDA to $295mn from $290mn, respectively, post the Q1 upside, which flows through to our FY estimates. We remain EW, as we wait for better visibility that COTY will be able to hit its robust medium-term targets (6% to 8% organic sales growth, 9-11% EBITDA growth through FY25) through an economic downturn."

Coty also presented its plan to double its skincare business from $270 million in FY22 to between $500 million and $600 million in sales by FY25 and $600 million to $700 million in sales by FY26.

"We view the strategy as a meaningful, though achievable, catalyst, pragmatically funded in part by $160mil and $75mil of productivity savings to be generated over FY23 and F24, respectively. We believe Coty can execute on this next pillar of its priorities while continuing to see momentum in prestige fragrance and beauty as well," a BofA analyst said in a note, maintaining a Buy rating and $12 price target. Coty remains BofA's top pick.