Avon Products (AVP) Surges; Oprah Not Investing in the Company

Avon Products

The stock price of Avon Products surged as much as $4.10 per share earlier today on speculations that Oprah Winfrey is investing in the cosmetics company.

Ms. Winfrey’s spokesperson told CNNMoney that the information is not true. The shares of the company closed nearly 7% to $3.72 per share. The stock gained another 2% to $3.80 per share during the extended trading today.

The shares of Avon Products are trading at $3.67 per share, up by 5.16% at the time of this writing around 2:56 in the afternoon in New York on Wednesday.

Last month, Oprah acquired a huge stake in Weight Watchers (NYSE:WTW) and joined the company’s board of directors. The news drove the stock higher by more than 100%.

Challenges confronting Avon

The cosmetics company has been struggling to return to profitability due to a combination of factors—its direct selling business model is becoming less effective, intense competition in emerging markets, and the strong dollar is hurting its sales overseas.

In December last year, Avon Products’ unit in China pleaded guilty in a bribery scheme. The company agreed to pay a penalty of $135 million to resolve the charges against it.

Over the past 52 weeks, the shares of Avon Products traded from its highest level of $10.20 per share to as low as $2.41 per share. The cosmetics company lost 62% of stock value year-to-date. Its current market capitalization is around $1.47 billion, down from its peak of $24 billion in 2004.

The Wall Street Journal previously reported that Avon Products was considering selling its North American business.

Avon stock rating recently upgraded to “Buy”

Wendy Nicholson, an analyst at Citigroup recently upgraded her his rating on the shares of Avon Products to Buy from Neutral with a price target of $5.00 per share.

Nicholson said the management of the company “likely articulated some long awaited plans to fund reinvestment in the business to reaccelerate more on profitable growth.”

The analyst recently visited the company’s business operations in Brazil, and suggested that it may open stores in the country given its commitment to become an omnichannel operator. The company 46% market share in Brazil and believes that consumers still have 100% awareness on Avon brands.

“What we think is less well understood by investors is that the direct selling business in Brazil is still large and growing, and perhaps more importantly, that Avon is indeed working hard on-the-ground in Brazil to try to restore this business to profitable growth,” said Nicholson.