Avon’s Sinking Stock Worth $18

AVP: Avon Products logo
Avon Products

Grappling with weak Q3 results in the wake of poor recovery and disruptive ERP implementation in Brazil, Avon Products’ (NYSE:AVP) stock hit a new 52-week low this week, after having a bear run over the last three weeks. The fact that the company is under investigation by the SEC accused with possible violations of the Foreign Corrupt Practices Act has added to further complications in business recovery. While announcing its last quarter results, the company also withdrew its previous full-year revenue guidance for further review. Avon sells its products to the final consumer through direct selling, which separates it from peers like L’Oreal (PINK:LRLCY), Procter & Gamble (NYSE:PG), Estee Lauder (NYSE:EL) and Unilever (NYSE:UL) that also sell beauty and personal care products.

View our detailed analysis for Avon’s stock here.

Investor Pessimism Leads Stock Decline

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The stock that had already lost significant value since the disclosure of SEC investigation tanked by another 15% soon after announcing poor Q3 results fraught with sales losses and business disruptions. The company also withdrew its revenue guidance, leading to doubts over its ability to stabilize its business and restore sales amid weakness and high competition in all its major markets like the U.S. and Brazil, and the potential impact of SEC investigations.

Business revival and re-positioning, especially while dealing with the SEC probe may further require more resources and investments over the next few quarters which is challenging at a time when Avon is already highly leveraged as well as struggling with falling margins. As a result, the stock’s investment-grade credit status has been downgraded by Moody’s and Standard & Poor’s. UBS also downgraded Avon stock from a “buy” rating to a “neutral” rating with a $20 price target.

The latest investigation has laid serious doubts in investors’ minds about the management’s ability to stabilize the company, which has led to further fall in the stock price.

We have a revised $18 Trefis price estimate for Avon stock, 10% ahead of the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis