Bull of the Day: Avon (AVP)

Zacks

With growing demand for its products and improved cost management, Avon seems to be in a position to deliver decent earnings growth.

Further, with a solid outlook for the industry, this Zacks Rank #1 (Strong Buy) beauty products company looks quite attractive as of now.

About the Company

Avon (AVP) is a leading global beauty company, with nearly $11 billion in annual revenue. The company is the world's largest direct seller with more than 6 million active independent sales representatives.

Avon products are available in over 100 countries, and the products include color cosmetics, skincare, fragrance, fashion and home products, under brand names like Avon Color, ANEW, Skin-So-Soft and Advance Techniques.

Excellent Results and Improving Fundamentals

Avon posted first-quarter adjusted earnings of $0.26 per share on April 30, easily crushing the Zacks Consensus Estimate of $0.14 per share, and increasing more than twice from the $0.10 per share in the prior-year quarter.

Adjusted gross margin was 62.5%, 160 basis points higher than the prior-year quarter, primarily due to lower freight costs and lower material costs.

After underperforming for many years, the company finally took a number of steps last year including upgrading senior talent, implementing stabilization plans for key markets, prioritizing product categories, reducing cost base and improving capital position.

These strategies finally seem to be paying off as this was the second consecutive earnings beat for the company after reporting six quarters of lower-than-expected results.

Positive Earnings Estimates Revisions

As a result of improving outlook for the company, analysts have been revising their estimates for the June 2013 quarter and the fiscal year 2013. Zacks consensus estimates for the second quarter and the fiscal year 2013 now stand at $0.25 and $1.15 per share.

Solid Industry Outlook

Per Avon, the global beauty Market is $400 billion currently and is projected to grow at 7% rate through 2017, mainly driven by surging demand in developing countries. Further, consumer shopping behavior continues to change but word-of-mouth remains the most trusted source of information, benfitting direct sellers like Avon.

With a Zacks Industry Rank of 17 out of 265, Cosmetics industry is expected to outperform significantly in the near-to mid- term, as well.

The Bottom Line

AVP is a Zacks Rank#1 (Strong Buy) stock. It also has a longer-term Zacks recommendation of “Outperform”. Additionally, a Zacks Industry rank of 17 out of 265 indicates very strong likelihood of continued strength in the short to medium term, compared with other industries.

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