Coty’s Turnaround Strategy Continues to Bear Fruit in Q3; Shares Now Appear Undervalued

With no-moat Coty’s fiscal third-quarter results largely as expected, we don’t plan a material revision to our $8.80 per share fair value estimate. Shares are starting to look attractive, given the 30%-plus drop in the stock year to date, driven by overall stock market weakness and investor risk aversion, in our view. That said, we think shares are best suited for long-term investors willing to endure some volatility, as we assign Coty a high uncertainty rating due to limited visibility on the results of its turnaround efforts. Risks stem from the broad scope of changes being addressed, as we think the plan is strategically sound, with savings from significant operational inefficiencies being deployed into brand-building initiatives under the keen eye of CEO Sue Nabi (named in 2020), who seems to have a clear sense of what today’s beauty consumers are seeking (high-quality products with clean ingredients and a noble purpose, i.e., cruelty-free).