Why Avon Might Be a Pretty Pick

Why Avon Might Be a Pretty Pick

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Avon Products jumped nearly 4% in early Tuesday trading after Wells Fargo upgraded the beauty-products company from market perform to outperform.

So what: Along with the upgrade, analyst Chris Ferrara boosted his price target range to $25-$26 (from $21-$23), representing about 28% worth of upside from the midpoint of the estimate to yesterday's close. Avon shares have slumped in recent months on continued concerns over weakening fundamentals, but Ferrara thinks that management's turnaround initiatives are only starting to gain traction and should soon start surpassing Wall Street's low expectations.

Now what: Ferrara expects Avon to earn $1.13 per share this year and $1.37 per share in 2014, noticeably higher than the consensus estimate of $1.10 and $1.33, respectively. "While there is still a long way to go, real progress has been made, and we expect EBIT margin expansion to outpace market expectations (and peers) over the next three years, driving higher-than-expected earnings results," wrote Ferrara. Of course, when you couple Avon's market-matching forward P/E of 15 with its still-hefty debt load, I'd wait for an even wider margin of safety before betting on that turnaround talk.

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The article Why Avon Might Be a Pretty Pick originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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