AVP Market Research & Analysis Report
Updated Mar 10, 2015

Growth and Balance Sheet

The company reported net loss of $330.7 million, or 75 cents diluted loss per share, for the fourth quarter of 2014 ending December 31. That's down from net loss of $69.1 million, or 16 cents diluted loss per share for the same quarter last fiscal year. AVP recorded diluted loss per share of 88 cents for the full year 2014, in comparison to diluted loss per share of 13 cents for the previous year. The company recorded a non-cash income tax charge of approximately $405 million, as a result of lower projected foreign source income available to realize the Company’s deferred tax asset. This was due to foreign currency devaluations, which lowered Company’s profits from foreign subsidiaries. Revenues for the fourth quarter were $2,341 million, down from $2,667 million for the same quarter last year. Each one of company’s geographical region recorded decrease in revenues in comparison to the fourth quarter of 2013. Latin America segment revenue was down 15% to $1,052 million. EMEA segment revenue was down 11% to $773 million. North America segment revenue was down 12% to $327 million. Asia Pacific segment revenue was down 2% to $189 million. Company’s gross margin decreased 28 basis points to 60.73% of sales from 61.01% in the fourth quarter of 2013, primarily due to unfavorable impact of foreign exchange and higher supply chain costs – primarily from high inflation countries. However the operating margin improved to 7.26% of sales from -0.64% for the fourth quarter of last year, primarily due to VAT credit in Brazil and Company’s cost savings initiatives. AVP forecasted first quarter of year 2015 EPS are expected to be from 5 cents to 10 cents, compared to actual loss per share of 38 cents for the first quarter of last year. The financial strength indicators of the company are at satisfactory levels. Company’s current ratio is 1.45 and the industry average ratio is 0.85. Also the quick ratio of 1.05 is better than the industry average of 0.66. The interest coverage ratio of 6.20 is worse than the industry average of 64.09, but it is still at healthy levels. In terms of efficiency and effectiveness, the asset turnover ratio of 1.48 is better than the industry average of 0.52; the inventory turnover ratio of 3.91 is also better than the industry average ratio of 2.41; and the ROE of -53.73% is at much worse levels than the industry average of 24.9%. 

Valuation

AVP PE is not meaningful due to negative earnings in the last twelve months as well as in the last three years. Over the last five years, the company’s shares have traded in the range of 11.32x to 69.45x trailing 12-month earnings. AVP's current Price/Sales of 0.44 is above the average of its industry of 2.44. AVP’s head to head comparison to its main competitors shows that the company has the lowest gross margin, but one that is above the industry average. The achieved operating margin of the company is again the worst result out of the selected competitors, and it is below the industry average. The quarterly revenue growth of the company is negative and lower results in comparison to the selected peers, and it is also below the industry average. The company is trading at lower P/S ratio in comparison to the competition. AVP’s twelve trailing months EBITDA is $782.60 million, higher result than REV and the industry average of $196.1 million. The beta of 2.24 implies higher volatility of the stock with respect to the S&P 500. AVP has not shown favorable earnings consistency over the last five years. Company’s earnings have decreased significantly over the same period. The current quarter earnings in comparison to the same quarter last year have decreased by over 380%. AVP Total Debt to Equity ratio of 851.95 is above the required maximum, and it is above the industry average of 64.7. AVP’s current price levels are above the maximum level, 43.04% below the 52 week high of $15.80, and the technical analysis give neutral to positive view of the stock. The majority of analyst ratings are hold. AVP has a trailing annual dividend yield of 2.70%.

About AVP

Avon Products, Inc. is engaged in manufacturing and marketing beauty and related products. The Company’s product categories include beauty, and fashion and home. Its beauty products include color, fragrance, skincare and personal care products. The Company’s fashion and home products include fashion jewelry, watches, apparel, footwear, accessories, gift and decorative products, housewares, entertainment and leisure products, children’s products and nutritional products. Its business is conducted worldwide primarily in one channel, direct selling. The Company's segments are based on geographic operations and include commercial business units in Latin America; Europe, Middle East and Africa; North America, and Asia Pacific. The Company has sales operations in 62 countries, including United States. In addition, its products are distributed in 43 other countries and territories.

Competitor Comparison

Avon Products Inc. (NYSE:AVP) N.V.

Highlights

Avon Products, Inc. manufactures and markets beauty and related products worldwide. The stock closed yesterday’s trading session at $9.00. In the past year, the stock has hit a 52-week low of $7.25 and 52-week high of $15.80. AVP has a market cap of $3.91 billion and is part of the Consumer Goods sector.      

• Diverse geographical presence mitigates local market risk
• Unique business model   
• Portfolio of strong awarding brands     

• Chinese operations marred with controversy and poor performance
• High debt burden might affect future expansion projects

AVP Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. AVP's 52 week high is $15.80, current price is $9.00, is 43.04% below the 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company P/E ratio is not meaningful due to negative earnings.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.10 % of AVP stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

AVP is trading in the range of $8.10 - $9.25 in the past 30 days. The stock has been showing support around the level of $7.50 and resistance in the $9 range. The stock is trading above the 50-Day Moving Average but below the 200-Day Moving Average. The RSI(14) is 56.38. As can be seen from the chart on page 1 the stock has been in a bullish trend since June last year. After plunging for about 8 months, the stock seems that have finally found support around $7.50. Since then the stock has regained some of the value, but it was not able to close firmly above $9. Closing above this resistance level would be a good confirmation signal that the bearish trend is over. Our indicators give neutral to positive view of AVP.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com are 2 Buy, 12 Hold, and 1 Underperform.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. AVP’s annual EPS for the last 5 years were 1.39, 1.18, -0.1, -0.13, and -0.88 this type of earnings action is not favorable.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. AVP’s Total Debt/Equity of 851.95 is above the required maximum, and it is above the industry average of 64.7.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. AVP’s adjusted EPS growth for this quarter relative to the same quarter a year earlier is -381.67%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. AVP’s annual earnings growth rate over the past five years is not meaningful.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.