Yep, That’s Avon’s Calling
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The “ding, dong Avon’s calling” shtick has been around since the company grew to become a cosmetics powerhouse in the 50’s and 60’s. Now Avon Products, Inc. (NYSE: AVP) is a $7.25 billion institution in the beauty products industry looking to find its way. This was made evident when the price shot up on Wednesday in response to the announcement the day before that Andrea Jung would move up to the boardroom and relinquish her role as CEO next year.
Not exactly a body blow, but it can’t help a person’s ego to know that investors are that excited to see you leave the day-to-day management of the firm. But it had to happen; the company has languished under her leadership, growing meagerly if at all while she was at the helm.
One problem, amongst many, was something seen all too often for old, established industry stalwarts; complacency. Avon’s been around for 125 years, and acted like it. Seemingly from nowhere, rivals like Estee Lauder (NYSE: EL), Elizabeth Arden (NASDAQ: RDEN), Proctor & Gamble’s (NYSE: PG) beauty products division and a host of international direct sellers left Avon in the dust. Of course, that’s what happens when you sit idly by.
Also of note regarding the ouster of CEO Jung is the announcement the company will look outside its walls for a successor. It appears the market took this as a sign of no confidence and summarily sold, or traders just wanted to make a quick buck on the run up. Either way, the stock price quickly came down $1 a share to its now current $16.81. Which is all the better for yield-seeking investors in search of minimal downside risk, with the very real potential for growth.
Avon’s trading at about half its 52-week high, with a P/E also about half of EL, RDEN and others in its neck of the woods. You have to go back almost 3 years, to March of 2009, to find AVP’s share price at this level. The remains of a scandal in China a few years back, coincidentally enough toward the end of 2008, lingers a bit but shouldn’t be the cause of much concern.
And AVP has another thing going for it the others don’t - a ridiculously good dividend in a no-interest market environment. A yield of 5.47% will certainly make the wait for a successor CEO easier to tolerate. And since we’re on the subject of a new CEO, there’s another way to view going outside the walls. If nothing else, it would not be a stretch to suggest that the first step in fixing a problem is recognizing you have one. Axing one CEO to be replaced by a senior exec of the same ilk would have been a bigger concern.
Finally, there’s consumer spending. Let’s face it, when consumers are focused on paying bills to keep the lights on, anti-aging and other beauty products are not on the top of most shopping lists. But as wallets loosen and the anti-aging market continues to grow, Avon is positioned to profit both here and internationally. Oh, and don’t forget the 5.47% investors get to enjoy along the way.
The investment opinions included are just that, opinions. Tim is not a licensed investment professional, nor has he been for several years. Investing involves risk, as you well know, so consider your decisions wisely.