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UBS lowers estimates but positive on Avon

October 4, 2011

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PORTLAND, Ore.—Avon Products Inc.'s stock has taken such a beating that it might be worth a look, UBS Investment Research analyst Nik Modi wrote Tuesday even as he lowered his price target and earnings estimates for the direct seller of beauty products.

THE OPINION: Avon shares have dropped 28 percent since it reported its second-quarter results in July, when it delivered a 23 percent gain in net income but missed analyst expectations. The company has struggled with the negative impact of foreign exchange, particularly in Brazil. Modi said the company is seeing a sell-off because of investor concerns about its fundamentals.

Modi lowered his earnings estimate for the 2011 fiscal year from $2.11 to $2.02 per share and his estimate for the 2012 fiscal year from $2.39 to $2.21 per share.

However, Modi is bucking investor sentiment and said Avon is a "risk worth taking" now, because its current stock price reflects the company's struggles. He said the company is delivering on its commitments and will likely expand further in Brazil and Mexico. Meanwhile its business in its struggling U.S. and Chinese markets, things are getting "less worse."

The company also has a new chief financial officer starting in November who could provide fresh perspective and financial leadership for Avon.

He maintained a "Buy" rating on the company's stock.

THE STOCK: Modi lowered his price target on the stock to $31 from $33 on the lower earnings estimates.

Shares of Avon fell 16 cents to $18.81 in afternoon trading, near their 52-week low of $18.17.