It's time to call on Avon

Posted May 6th 2009 10:00AM by Joseph Lazzaro
Filed under: Avon Products (AVP), Stocks to Buy

Avon Products' (NYSE: AVP) restructuring is starting to pay-off: cost savings (including a switch to global-based manufacturing and increased supply chain efficiencies) enacted in F2008 should continue to pay impressive returns in F2009 and F2010.

The world leader in direct-marketed cosmetics, toiletries, fashion jewelry, and fragrances, the global recession should weigh on Avon's results in Latin America and China, but there are recent signs that F2009 revenue will not drop the generally-forecast 7-10%. And that's helped send institutional investors back into shares recently, taking shares from about $14 to roughly $21-23. The First Call F2009 / F2010 EPS estimates for AVP are $1.64 / $1.89.

Further, AVP's 8% dividend increase and chatter about an upward revision to a share buyback program have further supported shares, and a p/e of 12 looks more than reasonable, given the brand and the company's geographic footprint. Hence, this is a 'get-ahead-of-pack-play,' albeit one with slightly higher risk.

Stock Analysis: Avon Products is a moderate-risk stock. Consider buying a 25% position in AVP now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your AVP position in the first half of 2009. Sell / Stop Loss if you were to buy shares in this company: $11.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: avon, avp