Revlon: Positive Operating Trends and a Low Valuation

Apr. 29, 2011 9:38 AM ETRevlon, Inc. (REVRQ)
Geoffrey Rocca profile picture
Geoffrey Rocca

Revlon (REV), the well-known maker of beauty products, recently announced earnings of 20 cents per share for the first quarter of 2011, as compared to 4 cents per share last year. The market seemed to cheer this news, sending the share price up 6.7% to $17.45 as of Thursday's close. Upon further investigation of Revlon's earnings history for the last few years, I conclude that these latest results are the continuation of a general trend of improvement that has been going on for the last few years, and that despite the strong reaction to earnings, Revlon is still attractively priced.

Revlon produces a full range of cosmetics, including makeup, nail polish, lipstick, eye makeup, and skin care products, as well as fragrances and deodorants. In the United States the company focuses on large retailers and drugstores, while overseas the company's outlets also include department stores and specialty stores. Non-U.S. sales for 2010 accounted for 45% of Revlon's total sales, up from 42% in 2008, and non-U.S. sales, particularly in Latin America, have been Revlon's major source of sales growth, offsetting occasional declines in U.S. sales. Revlon's five largest overseas countries for sales are South Africa, Australia, Canada, the United Kingdom, and Venezuela, which collectively accounted for 25% of total sales in 2010. This characteristic may make Revlon of interest to U.S. investors seeking to expand their exposure to non-US economies.

Revlon is 78% owned by Ron Perelman, who acquired the company in 1985 in a leveraged buyout, and has been deeply involved in Revlon's financing since that time. In October of 2009 Perelman attempted to acquire all the remaining outstanding shares, but a series of lawsuits forced him to change his offer into an offer to exchange common shares for preferred shares with a limited lifespan. Perelman has also lent money to Revlon from time to

This article was written by

Geoffrey Rocca profile picture
I am a California licensed attorney and have over six years' experience as an analyst and investor. My focus is on value investing opportunities in the equity and high yield fixed income areas.

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