COTY: Proprietary Brand Building Will Offset Gucci License Loss Over Time

Analysts have nudged their price target on Coty slightly lower to around $4 per share, reflecting concerns over the long term impact of losing the Gucci beauty license, even as they highlight the need for greater proprietary innovation and brand building.

Analyst Commentary

Analysts are broadly aligned that the Kering and L Oreal transaction heightens the strategic stakes for Coty, with the loss of key licenses forcing a sharper focus on what can drive sustainable, standalone value over the next several years.

Bullish Takeaways

• Bullish analysts view the heightened urgency around proprietary formulations and in house capabilities as a potential catalyst for better long term margins if Coty executes on vertical integration and innovation.
• There is optimism that a sharper focus on brand building could shift Coty away from dependence on external licenses toward higher quality, owned brands that justify premium pricing and support valuation multiples.
• Some see the market already discounting a significant portion of the Gucci risk into the current share price, leaving room for upside if Coty demonstrates credible progress on new product launches and portfolio repositioning.
• The transition period before the Gucci license expires in 2028 provides a runway for Coty to reinvest cash flows into growth initiatives, which bullish analysts think could smooth earnings and support a more stable growth profile.

Bearish Takeaways

• Bearish analysts emphasize that the impending loss of the Gucci Beauty license represents a material revenue headwind, removing a roughly $550 million brand from a portfolio already heavily reliant on fragrance.
• There are concerns that replacing the scale, prestige, and margin profile of Gucci Beauty will be difficult and may require elevated marketing and R and D spending, pressuring near to medium term earnings and valuation.
• Execution risk around building proprietary brands is considered high, with skeptics questioning whether Coty can move quickly enough to offset license attrition and maintain its competitive positioning against larger, better capitalized peers.
• With the stock already reacting negatively to the news, bearish analysts argue that a Hold stance remains appropriate until there is clearer evidence that Coty can deliver consistent organic growth without its third largest fragrance brand.

What's in the News

• Coty has initiated a comprehensive strategic review of its Consumer Beauty business, exploring options such as partnerships, divestitures, spin offs, and other actions to unlock value and strengthen the balance sheet (Key Developments).
• The company plans to more closely integrate its Prestige Beauty and Mass Fragrance businesses, aiming to leverage scale across R&D, consumer insights, manufacturing, and distribution to drive sustainable profitable growth (Key Developments).
• Coty reaffirmed its earnings guidance for fiscal 2026, expecting like for like sales to return to growth in the second half as inventory levels normalize and new Prestige launches support improved trends (Key Developments).
• For the second quarter of fiscal 2026, Coty anticipates a like for like sales decline at the favorable end of its prior outlook, supported by strong October performance in Prestige and a low to mid single digit FX benefit on reported revenue (Key Developments).
• Under its long running share repurchase program announced in 2016, Coty has completed buybacks totaling about 3.9 million shares, or 1.16% of shares, for approximately $104.65 million, with no additional repurchases in the latest reported quarter (Key Developments).

Valuation Changes

• Fair Value: nudged slightly lower from approximately $4.86 to about $4.83 per share, reflecting a modest reduction in long term expectations.
• Discount Rate: declined slightly from around 10.75% to roughly 10.50%, indicating a marginally lower perceived risk profile or cost of capital.
• Revenue Growth: increased modestly from about 2.06% to roughly 2.17%, signaling a small upgrade to long term top line growth assumptions.
• Net Profit Margin: edged up from approximately 5.34% to about 5.36%, suggesting a minor improvement in expected profitability.
• Future P/E: moved down slightly from about 17.7x to roughly 17.3x, implying a small contraction in the valuation multiple applied to future earnings.