Rising Middle Class And Digitalization Will Advance Beauty Trends

Key Takeaways

• Strong innovation, premiumization, and digital expansion could drive faster revenue growth and higher margins than current market expectations.
  
• Early moves in sustainability and influencer partnerships position Coty for long-term brand strength and increased profitability across global markets.
  
• Heavy reliance on Prestige Fragrance, increased competition, retailer destocking, and margin pressures threaten Coty's profit growth and highlight uneven regional performance and investment constraints.

Catalysts

Manufactures, markets, distributes, and sells branded beauty products worldwide.

• Analyst consensus posits mid-single-digit growth resuming after destocking winds down, but management confidence, strong innovation pipeline, blockbuster launches, and major fragrance mist initiatives suggest a much faster top-line acceleration in fiscal 2026 and beyond, potentially propelling revenues well above current expectations.
  
• While analysts broadly highlight Coty's shift to profitable mass fragrances and organizational changes as margin tailwinds, the rapid scalability of fragrance mists and the company's ability to capture both affordability and premiumization across global fragrance segments could drive a step-change in net margins and sustainable earnings growth, exceeding current sentiment.
  
• Coty is uniquely positioned to capture accelerated demand from the burgeoning global middle class-evidenced by outperformance of Lancaster in China and building strength in emerging markets-indicating significant long-term revenue upside as disposable incomes and beauty product adoption rise worldwide.
  
• The company is leveraging rapidly increasing direct-to-consumer channels and e-commerce, evidenced by its skin care and fragrance sales far outpacing the market in digital, which could structurally boost gross margins and sales efficiency while future-proofing Coty's business model.
  
• Coty's ongoing premiumization, coupled with its early-mover advantage in sustainability, clean beauty, and high-profile celebrity/influencer brand launches, creates the conditions for sustained price/mix improvement, premium margin expansion, and robust brand equity growth, supporting outsized long-term profitability.

Coty Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Coty compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Coty's revenue will grow by 2.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -6.5% today to 5.7% in 3 years time.
• The bullish analysts expect earnings to reach $366.7 million (and earnings per share of $0.48) by about August 2028, up from $-381.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 25.2x on those 2028 earnings, up from -8.4x today. This future PE is greater than the current PE for the US Personal Products industry at 22.2x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.6%, as per the Simply Wall St company report.

Coty Future Earnings Per Share Growth

Risks

• Coty continues to face significant pressure from retailer inventory destocking, particularly in the U.S., with management expecting volatility and only a gradual return to normal sell-in and sell-out alignment by late 2025, which could negatively affect near-term revenue recovery and potentially erode investor confidence in sustainable long-term revenue growth.
  
• Increased competitive intensity and promotional activity within both the Prestige and Mass categories, combined with persistent innovation fatigue among consumers and the rise of indie and niche brands, jeopardize Coty's pricing power and could compress gross margins and reduce net income over time.
  
• The company's profitability remains heavily reliant on Prestige Fragrance and blockbuster launches, while the consumer beauty segment generates only limited profit and may require tough decisions that prioritize margins at the expense of top-line growth, exposing Coty to the risk of stagnating or even declining net revenue.
  
• Despite strong growth in segments like scenting and skin care in China, Coty acknowledges ongoing challenges in Asian travel retail and softness in parts of the Asia ecosystem, indicating the risk of region-specific underperformance and uneven geographic diversification that may limit total earnings resilience.
  
• Persistent high leverage, the need to fund ongoing innovation and digital transformation, increasing regulatory and tariff headwinds, and the imperative to divest assets like Wella in a "good value" context may constrain Coty's ability to invest in new growth avenues, thereby putting long-term EBITDA and net margin expansion at risk.

Valuation

• The assumed bullish price target for Coty is $7.78, which represents two standard deviations above the consensus price target of $4.91. This valuation is based on what can be assumed as the expectations of Coty's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $8.0, and the most bearish reporting a price target of just $3.5.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $6.4 billion, earnings will come to $366.7 million, and it would be trading on a PE ratio of 25.2x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of $3.69, the bullish analyst price target of $7.78 is 52.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.