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Why Coty Stock Jumped Today

By Evan Niu, CFA – Updated Oct 7, 2020 at 1:24PM

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The beauty products maker gets an upgrade from Jefferies.

What happened

Shares of Coty (COTY 0.34%) jumped by as much as 10% today after getting an upgrade from Wall Street. As of 12:30 p.m. EDT on Wednesday, the stock was up by 6%.

So what

Jefferies upgraded its rating on Coty from hold to buy while assigning a price target of $4, which represents approximately 32% upside from Tuesday's close. Analyst Stephanie Wissink believes that Coty's new CEO will provide "needed depth of industry expertise." The beauty products company appointed industry vet Sue Nabi, previously an executive at L'Oreal, as CEO in July.

Various beauty products

Image source: Getty Images.

Wissink said she is also encouraged by recent "bold actions" that Coty has taken that demonstrate "a sense of urgency" to reduce risks around costs and the balance sheet. The consumer discretionary company is looking into shutting down or selling its factories and outsourcing production under an asset-light strategy designed to give it more financial flexibility during the COVID-19 crisis.

Now what

Jefferies is "unresolved" on whether or not the recent deals with Kylie Jenner and Kim Kardashian West will help drive a turnaround, but Wissink would much prefer to see improvement in the core brands like Rimmel and Sally Hansen. CoverGirl is one of Coty's strongest brands and continues to perform well.

"We expect [near-term] fundamentals to remain weak," the analyst wrote in a research note to investors, but she still recommends that investors buy the stock for "prospects for directional improvement."

Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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