The stock price of Avon Products, Inc. (NYSE:AVP) surged more than 16% to $3.31 per share after analysts at Citigroup (NYSE:C) said the cosmetics company has a potential for a turnaround to a profitable growth.
Avon Products recorded its biggest gain in more than two years as the stock reached as much as $3.65 per share earlier today.
Stock rating on Avon Products upgraded to “Buy”
Citigroup analyst Wendy Nicholson and her colleagues upgraded their stock rating on Avon Products from “Neutral” to “Buy” with a price target of $5.00 per share.
In a note to investors, Nicholson and her fellow analysts said Avon Products will “likely articulated some long awaited plans to fund reinvestment in the business to reaccelerate more on profitable growth.
During the third quarter, Avon Products posted an unexpected loss due to the strong dollar and a new tax in Brazil. The company posted a loss or $0.11 per share compared to the $0.07 earnings per share expected by analysts. The company has been struggling because its door-to-door sales strategy in its home market is becoming less effective.
Avon Products is working hard to return to profitability
The analysts recently visited the business operations of Avon Products in Brazil. They noted that the direct selling market in the country represents $12 billion in retail sales based on data from Euromonitor.
Avon Products estimated that its market share in Brazil was 46% last year, down from 50% in 2010. However, the company believes that there is still a 100% consumer-awareness on Avon brands in the country. Currently, the company has 1.5 million representatives in Brazil.
Nicholson and her fellow analysts suggested that Avon Products may be considering opening stores in Brazil given its commitment to become an omni-channel operator in the country. Additionally, the company’s retail store strategy in Chile has been successful for several years.
Brazil is the largest market for Avon Products, representing 22% of sales in 2014.
“What we think is less well understood by investors is that the direct selling business in Brazil is still large and growing, and perhaps more importantly, that Avon is indeed working hard on-the-ground in Brazil to try to restore this business to profitable growth,” according to the analysts.
