Coty Justified “Higher Valuation” Amid Improved Macro Conditions, Piper Sandler Upgrades and Raises Target

By Vlad Schepkov

Analysts at Piper Sandler have upgraded Coty to "Overweight" from "Neutral" and increased their price target for the stock to $10 from $8, citing positive business conditions and macroeconomic trends impacting the company.

In their recent analysis of the beauty brand, the analysts noted several areas where Coty stands to benefit:

1. Expanding exposure to China and Travel Retail is expected to provide substantial recovery momentum.
2. A stronger emphasis on luxury and prestige products in both skincare and fragrance is anticipated to enhance profit margins.
3. The restructuring of the consumer portfolio has resulted in market share gains, which should offer a solid buffer against potential negative trade scenarios.

The analysts concluded that with Coty’s valuation currently at approximately a 5-turn discount compared to its peers and about 3.5-turns below the 2021 average, it seems reasonable to expect a reduction in this valuation gap. They are projecting a valuation of around 13 times the FY’24 EBITDA, up from about 10 times previously, while peers average closer to 17 times.

Coty’s shares are up over 1% on the first trading day of 2023, following a nearly 20% decline through 2022.