Avon: A LBO May Not Be Knocking at Its Door

Excerpt from our One Page Barron's Summary (receive it weekly by email by signing up here):

Buyout Talk Lifts Avon. Time to Sell.

Highlighted companies: Avon Products Inc. (AVP)
Summary: At $33 Avon Products Inc. (AVP) is up 16% since March. Much of the gain has been due to rumors of an impending leveraged buyout. Q3 results were mixed: total sales were up 9% ($2.1b), but only 4.5% after stripping out the effects of foreign-currency translation and an acquisition. Even the lower figure beat the company's guidance and encouraged investors. But net income fell 47% ($86.4m) and EPS fell to $0.19 cents from $0.35 -- results were hurt by $56m in restructuring charges and a $21m one-time tax increase. Bulls hope restructuring charges will cool off by 2007, allowing earnings to improve. As far as the LBO rumors, it's no sure thing. Barron's: "It's tough to see how a buyer, financial or strategic, could earn an adequate return on investment," seeing as the company already trades at 11.6x Ebitda; consumer sector buyouts have been going for 12x. And the Federal Trade Commission has proposed new rules for multilevel marketers that could take a heavy toll from Avon value if approved. "At 21 times 2007 estimated earnings of $1.61 a share, we see little upside left."
Related: LBO Fever -- Barron's Look at Who May Be Next • MLM Legislation Ignites Short Sellers • Avon Misdirects Ad Spending • Avon Q3 2006 Earnings Call Transcript