We Like Changes Afoot at No-Moat Coty, Although We Don't Care for Stock's Valuation

We are increasing our fair value estimate for no-moat Coty, which had been under review, to $8.80 per share from $8 after digesting the strategy management laid out at its Nov. 18 investor day. We’re increasing our long-term organic sales forecast to 6.5% annually, at the low end of Coty’s 6%-8% guidance but above our previous 3%-4% projection. Coty’s sales growth should accelerate as it increases its revenue mix to faster-growing markets such as skincare, prestige makeup, China, and e-commerce. But we think sizable exposure to slower-growing mass beauty (41% of fiscal 2021 sales) will make it difficult for Coty to achieve growth at the middle to upper end of its guidance.