Revlon's (REV) stock has been choppy lately, swinging 10% to 20% in either direction on small news items. Recently, a fire at its plant in Venezuela led to a near 10% dip, even though that market makes up only 3% of its sales. Investors' concerns regarding Revlon's debt levels underlie this volatility, though its recent efforts to refinance some existing debt have helped to alleviate those worries. Revlon is one of the leading makers of cosmetics and beauty care products and competes with personal care companies like L'Oreal (LRLCY), Estee Lauder (EL) and Avon Products (AVP).
We value Revlon with a $17.66 Trefis price estimate of its stock, which is roughly 10% ahead of its current market price.
Here we take a closer look at some of the recent events that have contributed to Revlon's swings in the past month.
Refinancing of Revlon's existing term loan facility
In mid-May, Revlon announced a new term loan facility refinanced an outstanding $792 million loan with an $800 million loan while reducing Revlon's effective interest rate on the debt and extending its maturity for this debt from March 2015 to November 2017. This move took advantage of the favorable fundraising environment and gave the company some more flexibility with its debt obligations.
We wrote recently how earnings have held up for the company and that debt was on of the biggest outstanding factors. (See Revlon Earnings Show Recovery Underway, Debt Levels Should be Next Focus)
Fire in Revlon's Venezuelan Manufacturing Facility
A fire damaged Revlon's facility in Venezuela on June 5, 2011. The company has yet to release the extent of the damage to its business but given that Venezuela makes up for only 3% of Revlon's sales total asset base, the subsequent 9% drop (from $16.50) in Revlon's stock was exaggerated in our view.
Refinancing of Revlon's Revolving Credit
Earlier this week, Revlon announced that it refinanced its existing revolving credit facility that was set to expire in March 2014, pushing its new $140 million revolving credit facility to June 2016 while securing better financing terms from the banks underwriting these loans.
Again, the reduced interest expense was met with a favorable response as Revlon's stock climbed up to current levels of around $16, with a further recovery expected in the near future.
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