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Avon (AVP) Rallies 42% in 3 Months: What's Aiding the Stock?

Avon Products, Inc. AVP is gaining momentum on the back of its ‘Open Up Avon’ strategy. This strategy focuses on reviving the company’s direct selling business model, renovating the brand, enhancing e-commerce and other capabilities to aid a performance-driven transformation. Backed by the aforementioned initiative, the company also remains committed to attain its long-term financial targets for 2021.

In the past three months, shares of this Zacks Rank #1 (Strong Buy) company have charted a solid trajectory. The stock has gained 42.1% compared with the industry’s 12.1% rally. Furthermore, Avon has an expected long-term earnings growth rate of 7.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let’s Have a Close Look

As part of the ‘Open Up Avon’ initiative, Avon expects to improve operating efficiency, slash inventory levels and reduce portfolio complexity by certain restructuring efforts including 25% decrease in Stock Keeping Units (SKUs), 15% reduction in inventory levels and 10% job cuts. These jobs cuts are estimated to fetch Avon annualized pre-tax savings of nearly $97 million by 2019 end. All these efforts are likely to help the company simplify operations and generate higher cost savings. Impressively, Avon accomplished cost savings of roughly $40 million in 2018 driven by this strategy.

With regard to Avon’s financial targets for 2021, the company intends to generate total cost-savings of $400 million by expanding manufacturing and distribution, outsourcing efficiencies, zero-based redesigning of back office functions, reducing certain facilities and managing revenue, interest and tax. In addition, management expects to invest roughly $300 million toward commercial, digital & IT infrastructure also targets achieving low-single digits revenue growth and low double-digits margin expansion by 2021.

In the fast-growing e-commerce space, Avon is capitalizing on the growth opportunities, making this platform a major growth driver. Furthermore, it remains committed toward improving digital tools and e-commerce channel to boost sales and Representative experience. The company also created dedicated e-commerce business units in all key markets, which helped it to steadily increase sales through this channel. Management targets doubling e-commerce sales in 2019.

Furthermore, Avon delivered solid earnings in first-quarter 2019, primarily driven by synergies from the ‘Open Up Avon’ strategy and expansion in adjusted operating margin. Results also reflected significant gains from improvement in price/mix and average orders. Notably, a favorable price/mix across all segments aided constant-currency revenue growth in three of the company’s four geographical segments. The improved price/mix and average orders were driven by the company’s constant focus on revenue growth management including lesser discounts, and more targeted and effective incentives, with little promotions.

3 Other Key Picks in the Same Space

The Estee Lauder Companies Inc. EL delivered positive earnings surprise in each of the trailing four quarters, the average being 14.2%. The company carries a Zacks Rank #2 (Buy).

Helen of Troy Limited HELE is also a Zacks Rank #2 stock, which delivered average positive earnings surprise of 15.9% in the last four quarters.

Medifast, Inc. MED delivered average positive earnings surprise of 9.1% in the last four quarters. The company carries a Zacks Rank of 2.

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