Coty Stock Ready to Shine After JAB Offers to Increase Stake

JAB offered to raise its stake in Coty to 60%

by Patrick Martin

Published on Feb 12, 2019 at 9:17 AM

Few stocks have had as hot a start as Coty Inc (NYSE:COTY), up 47% year-to-date. The cosmetics name is poised to add to those gains, after investment firm JAB Holding, the company's largest stakeholder, issued a tender offer to add 150 million more shares at a price of $11.65, compared to yesterday's closing price of $9.66, upping its potential stake to 60%. The news has COTY up 17.5% in electronic trading this morning. 

Should today's price action pan out, the shares would running up to their 200-day moving average, a trendline that has remained elusive since April. COTY fell to a record low of $5.91 as recently as Dec. 26, and since then has turned in only one weekly loss. There's still plenty of work to be done though, as the security still has a 12-month deficit of 52.6%. 

There is reason to believe COTY could keep climbing. For one, short interest fell nearly 4% in the most recent reporting period, yet the 67.65 million shares still represents a healthy 15% of the equity's total available float. At its average daily trading volume, it would take bears more than seven days to buy back their bearish bets.

While some analysts are warming to the cosmetics stock, the sentiment is still generally pessimistic. Of the 12 brokerages covering COTY, nine rate it a tepid "hold" or "sell." What's more, its consensus 12-month price target of $9.96 sits only a fraction above last night's closing price. 

There could even be pessimism unwound in the options pits. The security's Schaeffer's put/call open interest ratio (SOIR) of 1.78 sits in the 100th percentile of its annual range. This suggests short-term options players have rarely been more put-heavy in the past year. 

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