Analyst Note| Rebecca Scheuneman, CFA |
After reassessing Coty’s new strategic direction, and the likely impact these initiatives should have on the firm’s top line, we are revising our three-year (fiscal 2022-24) average annual organic sales growth forecast to 6% from 3%, taking our fair value estimate to $6.40 from $5.50. Sue Nabi was named Coty’s CEO in September and, under her leadership, the firm is seeking to 1) stabilize its mass beauty business; 2) accelerate its luxury fragrance core while establishing it as a key player in prestige makeup; 3) build out a skincare portfolio across prestige and mass; 4) enhance its digital capabilities; 5) expand in China; and 6) establish it as an industry leader in sustainability. These initiatives should expand Coty’s presence in high-growth markets where the firm has been minimally exposed, such as prestige makeup, skincare, e-commerce, and China. The program will be funded by the elimination of $600 million in fixed costs by fiscal 2023, which we continue to expect will lead to operating margins of over 14% by 2030 (up from 7% pre-pandemic) despite the aforementioned new investments.