Is Coty Stock a Buy? KKR Says Yes
In May of this year, global asset management firm KKR (NYSE: KKR) purchased 60% of Coty's (NYSE: COTY) assets. The deal valued Coty -- a global company that develops, manufactures, markets, and distributes fragrances, cosmetics, skincare, nail care, and hair care products -- at $4.3 billion, representing a 34% premium to today's price. With the embattled beauty company's stock trading for 6.5 times last year's earnings and well under 1 times sales, should you join KKR by investing in a Coty comeback? Let's explore.
Coty has struggled for years with developing its e-commerce capabilities as an effective strategy for a slowdown in brick-and-mortar shopping. Furthermore, it aggressively leveraged its balance sheet to juice growth. That undesirable combination developed long before COVID-19 entered the picture. The pandemic simply added another daunting challenge to endure.
With the stock trading at new lows, KKR took advantage and bought a majority interest in Coty's professional and retail hair businesses for $2.5 billion. It also issued $1 billion in new credit to Coty to fortify its balance sheet at a 9.5% interest rate. With KKR's help, Coty plans to cut its fixed costs by 25% ($600 million) over the next few years. Already, Coty's net debt-to-EBITDA ratio dropped from 5.6 to 4.5 as a direct result of the deal, providing encouraging deleveraging to its stressed financials.
Source Fool.com
