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After Hours: Avon Is Sold, Tesla Bull Goes Bearish

By Eric Volkman – May 22, 2019 at 8:40PM

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There was some lively news on the markets regarding a big buyout, and a certain high-profile auto company.

The after-market scene was animated Wednesday. An influential analyst who had championed Tesla (TSLA -1.55%) stock seems to be turning sour on the company.

Not to be outdone by an analyst turn, Brazilian cosmetics conglomerate Natura and Avon Products (AVP) finally confirmed that Natura is to purchase its American peer in a splashy cross-border deal.

It hasn't been a boring night. Let's drive straight to our destination.

A blue Tesla Model Y car.

A Tesla Model Y. Image source: Tesla.

Tesla: Losing a big fan?

An influential analyst who was bullish on Tesla stock appears to be moving into the bear cave. According to media reports coming in after market, Morgan Stanley prognosticator Adam Jonas expressed doubt about the company's prospects in a private call with a number of the bank's institutional clients.

Business Insider and CNBC both say they had access to a recording of the call, and quoted Jonas directly from it.

The influential analyst effectively contrasted Tesla's strong position in Q4 of its fiscal 2018 -- in which the company enjoyed strong demand, robust cash flow, and buzz about its upcoming Model Y SUV -- with its present situation.

"Today, supply exceeds demand, they're burning cash, nobody cares about the Model Y, the company raised capital near lows, no strategic buy-in," he was quoted as saying.

"Tesla is not really seen as a growth story," he added. These days "[i]t seems like a distressed credit and restructuring story."

Jonas also expressed skepticism about the prospects for Tesla to be bought out by a big tech powerhouse such as or Apple.

Tesla is a very up-and-down stock, so its investors are quite resilient. The shares are off, but only slightly, in after-market trading following the media reports.

Avon gets a new owner

Avon stock is up nearly 17% in after-hours trading. It and Natura put out a joint statement confirming the buyout, which had been a hot rumor percolating throughout the day. Natura is to acquire Avon in an all-stock transaction that reaches a total value of roughly $2 billion. Avon shares are to be exchanged for Natura stock at the rate of 1/0.3.

Subsequent to this, current Natura stockholders will hold roughly 76% of the resulting company.

In the statement, Natura said owning Avon will result in cost savings of $150 million to $250 million per year. It said that some of this is to "be reinvested to further enhance capabilities in digital and social selling, research & development and brand initiatives and to continue to grow the Group's geographic footprint."

Although Avon has a strong brand, as a direct seller it's a bit of a dinosaur in an industry that has better adapted to today's marketing techniques, particularly social media. Avon's performance might well improve when incorporated into a larger, savvier peer.

The buyout is subject to the relevant regulatory approvals. The two companies expect it will close in early 2020.

L Brands beats on Q1 revenue and EPS

L Brands (BBWI 0.86%), owner of high-profile retail chains Victoria's Secret and Bath & Body Works, reported its Q1 2019 results. The bottom-line figure in particular is attracting after-market traders.

In its Q1, the company posted net sales of $2.56 billion, down slightly from the $2.63 billion it reaped in Q1 2018. It netted a profit of just over $40 million ($0.14 per diluted share) against a nearly $48 million profit in the year-ago quarter. Comparable-store sales were effectively flat on a year-over-year basis.

However, on average, analysts were expecting L Brands to merely break even on the bottom line this quarter, so the net profit figure was a very pleasant surprise. The net sales figure also exceeded expectations, which were set around $2.56 billion. Also, analysts had expected a drop in "comps" by 1.3%.

The company lifted the lower end of its full-year 2019 guidance; it now expects to earn between $2.30 and $2.60 per share (the previous range was $2.20 to $2.60). It's also projecting earnings per share of $0.15 to $0.20 for its Q2.

L Brands is a high flyer in after-market trading. Its stock is up by almost 13% as of this writing.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Apple, and Tesla. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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