Coty Earnings: Fragrance Strength Fuels Growth but Weak Skincare Lineup Remains a Concern

We don't plan any material changes to our $10.50 and EUR 9.50 fair value estimates for no-moat Coty after absorbing the beauty maker’s second-quarter results in fiscal 2024. Organic sales and adjusted EPS were up 11% and 14%, respectively, edging our 10% and 11% projections due to successful new launches, broadening retail distribution in the premium fragrance aisle, and cost discipline. However, we remain unenthused about Coty’s long-term prospects given its reliance on the small fragrance category and a lack of compelling premium brands in the larger skincare category that offers more attractive growth and margin potentials. We are maintaining our 10-year forecasts for 5% sales CAGR and 14% average operating margins, and view shares as richly valued.