Avon’s Cheap, and for Good Reason
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Though some things have changed, too many others have stayed the same since the first write-up of Avon (NYSE: AVP) in the middle of December. At that time Avon was trading at $16.81 a share and provided shareholders with a nice 5.5% yield. The company was undervalued, had recently announced that CEO Andrea Jung was getting kicked upstairs to the boardroom and there were some gains to be had.
The time was ripe for a relatively quick momentum play and the 6% gain, along with that dividend, isn’t bad for a couple of months. Now? This is a company that is clearly going nowhere fast.
As AVP approaches $18 share after their recent earnings announcement, up about 2% today alone, the question is why? Jung is still lingering, and frankly there doesn’t seem to be much inclination to hurry things along. Results were horrendous, with or without excluding one-time charges and costs, and by most accounts it appears 2012 will be anything but groundbreaking for the company. Ms. Jung herself stated that this will be a “transition year.” She went on to say that the company is not “…standing still during this transition period.” Really, maybe jogging in place then?
As a proponent of value investing it goes against my nature to suggest that Estee Lauder (NYSE: EL), Elizabeth Arden (NASDAQ: RDEN)) or Nu Skin Enterprises (NYSE: NUS) are better investment options even though they all trade at twice the multiples of AVP, but that’s what it’s come to. Each of these firms is seeing growth in revenues while Avon wallows in stagnation. And with the recently announced strong consumer spending numbers, these are firms that could benefit as we move further into 2012.
The $400,000 loss for the quarter was due to a $166 million charge on the Silpada Designs division and restructuring costs. But even removing that from the mix, $0.39 a share in earnings is nothing to shout about, nor was a 4% decline in revenue. Both were significantly off 2010 results and what’s most frustrating is outside some senior management rhetoric, nothing’s being done about the mess that is Avon.
According to analysts the reason for the bump in share price is because everyone expected a poor quarter – huh? Because they were on the mark -- in other words, the company did underperform -- they start buying? Wow, just when you thought you’d seen it all.
To be fair, 2011 revenues did rise over 2010, which is always a good thing, though earnings dropped from $1.39 a share to $1.18 a share.
There is some additional good news, of sorts anyway. AVP has confirmed the dividend will stay intact for 2012, and at 5.15%, that still looks pretty darn good. The other bit of good news is that when -- or perhaps it should be ‘if,’ the way things are going -- CEO Jung is finally replaced there will be cheers from investors and subsequent buying. That or some movement in the bribery scandal and SEC investigations may be all it takes to get a quick pop in share price, but you can be sure that’s all it will be, a quick pop.
Daytraders and yield seekers keep your eyes on this one, but for investors seeking growth with even the slightest bit of stability, there are way too many negatives to consider AVP seriously.
The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.