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Avon (AVP) Stock Looking Up: Is a Beat Likely in Q1 Earnings?

We expect the global beauty retailer, Avon Products Inc. AVP to beat expectations when it reports first-quarter 2016 results before the bell on May 5.

However, the company has been grappling with currency headwinds and tough macroeconomic conditions. As a result, it delivered negative earnings surprises in three of the last four quarters, with an average negative surprise of 85.7%. Let’s see how things are shaping up for this announcement.



Why a Likely Positive Surprise?

Zacks ESP: Avon currently has an Earnings ESP of +50.00%. This is because the Most Accurate estimate stands at 3 cents, while the Zacks Consensus Estimate is pegged lower at 2 cents. A favorable Earnings ESP serves as a meaningful indicator of a likely positive earnings surprise.

Zacks Rank: Avon carries a Zacks Rank #3 (Hold). Note that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings. Conversely, Sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Avon’s favorable Zacks Rank and positive ESP, the two key ingredients to predict a beat, make us reasonably confident of a positive earnings surprise.

What's Driving the Better-than-Expected Earnings?

In spite of Avon’s dismal earnings trend, the company’s recently announced transformation plan to cut costs and efficiently channelize these savings toward driving growth seems to make sense. Effective implementation of this plan is likely to help Avon attain its long-term revenue and margin targets.

Apart from this, Avon is focused on enhancing Active Representatives’ growth, with significant progress noted on this front in 2015, along with expectations of further improvement in 2016. Also, with its offloaded North American business, sold Liz Earle brand and efforts to enhance IT infrastructure through a pact with Hewlett Packard Enterprise Company, Avon seems well positioned to revive its business. All these factors make us confident of a reasonably good quarter this time.

Other Stocks to Consider

Avon is not the only firm looking up this earnings season. The following companies are also likely to beat earnings in the to-be-reported quarter:

Church & Dwight Co. Inc. CHD, scheduled to report earnings on May 5, has an Earnings ESP of +1.19% and a Zacks Rank #2 (Buy).

Home Depot Inc. HD, scheduled to report earnings on May 17, has an Earnings ESP of +1.50% and a Zacks Rank #3.

Urban Outfitters Inc. URBN, scheduled to report earnings on May 18, has an Earnings ESP of +8.00% and a Zacks Rank #2.

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HOME DEPOT (HD): Free Stock Analysis Report
 
AVON PRODS INC (AVP): Free Stock Analysis Report
 
URBAN OUTFITTER (URBN): Free Stock Analysis Report
 
CHURCH & DWIGHT (CHD): Free Stock Analysis Report
 
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