Please ensure Javascript is enabled for purposes of website accessibility

Why Coty Stock Popped Today

By Jeremy Bowman – Oct 8, 2020 at 4:39PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the cosmetics maker gained after it launched a new Kylie product.

What happened

Shares of Coty (COTY 0.07%) were climbing for the second day in a row today after the cosmetics maker announced the launch of Kylie Skin in the U.K., France, Germany, and Australia under a direct-to-consumer model this morning. The gains also came as the company got an analyst upgrade yesterday.

The stock closed today's session up 12.3% after a 9.5% gain yesterday.

So what

The struggling cosmetics giant has staked its turnaround bid on Kylie Cosmetics, the company founded by celebrity Kylie Jenner that Coty paid $600 million to acquire a 51% stake in. The beauty industry has been significantly impacted by the pandemic, but skin care sales have held up better than segments like fragrances and cosmetics, which are used more for work and social events.

A woman dries her face with a white towel.

Image source: Getty Images.

The Kylie Skin launch therefore gives Coty a chance to capitalize on a rare growth trend during the pandemic as the direct-to-consumer channel has boomed as consumers remain reluctant to venture into stores. Coty said the new DTC website would allow for faster delivery and use local languages and currencies. It also touted the popularity of Kylie products, noting that some collections have sold out in as little as 18 minutes on the website.

Also yesterday, Coty stock was upgraded from hold to buy at Jefferies as analyst Stephanie Wissink was optimistic that new CEO Sue Nabi could lead a turnaround and believes improving fundamentals will lift a beaten-down share price.

Now what

There is certainly an argument to be made that Coty is a turnaround play, as the stock is down by two-thirds year to date after crashing when lockdowns swept the globe in the early days of the pandemic. The company is one of the biggest cosmetics companies in the world and the global leader in fragrances, but has struggled after acquiring Procter & Gamble's beauty business for $12.5 billion in 2015. That segment has underperformed and the deal saddled the company with debt. The stock is down 86% over the last five years, roughly since the deal was completed, and Coty carried $8 billion in debt as of its most recent earnings report.

A recent partnership with private-equity firm KKR to get a cash infusion and an agreement to sell a majority stake in its professional hair care business, Wella, to KKR is a step in the right direction, but pandemic-related headwinds remain and a turnaround won't be easy. More asset sales could be on the way as the company looks to shore up its financial position.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Jefferies Financial Group Inc. The Motley Fool recommends KKR. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Coty (Class A) Stock Quote
Coty (Class A)
COTY
$7.46 (0.07%) $0.01
Procter & Gamble Stock Quote
Procter & Gamble
PG
$145.41 (-0.81%) $-1.20
Jefferies Financial Group Inc. Stock Quote
Jefferies Financial Group Inc.
JEF
$37.41 (0.19%) $0.07
KKR Stock Quote
KKR
KKR
$50.61 (0.12%) $0.06

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
351%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.