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Deutsche Still Finds Coty Attractive

Deutsche Bank maintained its Buy rating and $32 price target on Coty Inc COTY 0.31% after it reported fourth quarter EPS of $0.13, $0.07 above Street.

Management expects Coty standalone organic growth to turn positive in the back half of FY17 with solid improvement in operating margin and strong cash flow conversion.

"While current category and geographic exposure mean company growth will structurally trail peers Estee Lauder and L'Oreal, we see a path to step change improvements in profitability and cash flow and return to positive organic growth," analyst Bill Schmitz wrote in a note.

However, the analyst said there is high short interest driven by deal mechanics and belief by many that company is a slow or no growth firm.

But, Schmitz thinks Coty is still attractive due to the following reasons:

"actions to spur organic growth acceleration are forthcoming";

"P&L flexibility is significant as management runs Coty more like a CPG company than a prestige beauty outfit"; and

"considerable EPS and cash flow upside versus consensus redeployed to feed the acquisition beast, with a more agile, faster growing business emerging."

At time of writing, shares of Coty fell 1.70 percent to $27.82.

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