On Dec 16, 2015, Zacks Investment Research downgraded New York-based Avon Products Inc. AVP, to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
The company has been gradually losing its momentum due to continuous loss of active representatives, declining volumes, unfavorable foreign currency translations and reduced margins in mature markets like North America.
Avon posted third-quarter 2015 results last month, where both its top and bottom lines fell year over year. The company’s dismal performance was mainly attributable to continued pressure from a volatile currency backdrop and a tough macroeconomic environment.
Further, management narrowed its 2015 guidance for sales and margins to account for the anticipated increase in negative currency translation effect and adverse impact from additional VAT taxes in Brazil.
Moreover, over the last five years, Avon has witnessed a declining revenue trend in North America, especially in the U.S., mainly due to a decrease in active representatives. Management is concerned about this rapid decline. Hence, it has been constantly striving to stabilize the situation.
We believe that all the aforementioned factors led to downward revisions in Avon’s earnings estimates as analysts have become less constructive on the stock’s future performance. The Zacks Consensus Estimate slumped 67.6% to 11 cents per share for 2015 and 33.3% to 8 cents per share for the fourth quarter, over the past 60 days.
Stocks to Consider
A better-ranked stock in the same industry is The Estée Lauder Companies Inc. EL, with a Zacks Rank #2 (Buy). Other favorably ranked stocks in the related industry include Regis Corp. RGS, with a Zacks Rank #1 (Strong Buy) and ULTA Salon, Cosmetics & Fragrance, Inc. ULTA, with a Zacks Rank #2.
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