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Vivek Kumar
make-up brushes in holder and cosmetics isolated on white

Coty Inc, an American multinational beauty company, has announced that it will acquire 20% stake in Kim Kardashian West’s beauty business worth $200 million, sending shares of the cosmetics maker up over 12%.

The value of the deal is about $1 billion, as first reported by the FT, which is just below the $1.2 billion Coty put on West’s younger sister Kylie Jenner’s business when it acquired a 51% stake in January.

The cosmetics maker is saddled with billions of dollars of debt following slow sales due to salon closures worldwide amid coronavirus crisis. In order to ease some burden, the company has offloaded a majority stake in its hair and nail care business for $3 billion in May.

The acquisition is expected to close in the third quarter of FY21. All the business’ products will be sold through leading luxury beauty retailers as well as owned digital channels. After the announcement, Coty shares gained over 12% to $4.70 in pre-market New York trading on Monday.

Coty outlook and price target

Seven analysts forecast the average price in 12 months at $6.00 with a high of $8.00 and a low of $5.00. The average price target represents a 43.54% increase from the last price of $4.18, according to Tipranks. From those seven, one analyst rated ‘Buy’, six rated ‘Hold’ and none rated ‘Sell’.

Morgan Stanley target price is $6 with a high of $10 under a bull scenario and $2 under the worst-case scenario. Coty Inc has received a consensus rating of “Hold” from the sixteen rating firms that are currently covering the stock, as per MarketBeat Rating report.

The average yearly target among equity analysts were $8.58. Stifel cuts price target to $6 from $7. Last month, Jefferies lowered its price target to $5 from $5.50, Citigroup cuts price target to $3.1 from $4 and Deutsche Bank cuts target price to $6 from $8. On the other hand, 50-day Moving Average and 100-200-day MACD Oscillator signals a strong selling opportunity.

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Analyst comment

“We remain Equal-weight on Coty with weak underlying fundamentals reflected in valuation,” wrote Dara Mohsenian, equity analyst at Morgan Stanley in his last month’s note.

“Long-term, we expect a gradual improvement to slight Coty organic sales growth, well below peers, after a severe near-term COVID-19 impact. COTY trades at a valuation discount to more attractive beauty peers, which we believe properly reflects COTY’s suboptimal beauty positioning, near-term execution risk, low earnings visibility, and high net debt/LTM EBITDA leverage,” he added.

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