No-Moat Coty’s Turnaround Strategy Is Progressing as Expected, but Shares Appear Fully Valued

Coty’s December-ended fiscal 2022 second-quarter results confirmed the company’s turnaround is on track, reinforcing our conviction in our long-term forecast for 6%-7% annual sales growth and operating margins that reach 15% over the next decade. For fiscal 2022, management increased like-for-like sales growth guidance to mid-teens (up from low- to mid-teens), reiterated EBITDA of at least $900 million, and increased EPS guidance by $0.02 to $0.22-$0.26. This outlook compares with our estimates of 14%, $944 million, and $0.37, respectively. We plan to raise our fiscal 2022 marketing expense forecast, which will reduce our EBITDA and EPS estimates, but should not materially alter our $8.80 per share fair value estimate, leaving shares fairly valued after the 8% surge on the report.