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Small Cap Profile: Revlon (REV)
[BRIEFING.COM -- Robert J. Reid] History shows that when a company swings back into profitability following a long lull, it often acts as a catalyst. New management coming in to turn the business around also helps. The stock has been slowly trending higher and broke above resistance of $2.75 on strong volume. Also, the PG/G merger could keep the focus on the consumer product space for potential consolidation. Revlon is by no means out of the woods, especially given its high debt levels, but there are signs it could make for a nice turnaround play.
Background
Revlon (REV 2.79 -0.15) is a worldwide cosmetic, skin care, fragrance, and personal care products company. The co's brands include Revlon, Almay, Ultima, Charlie, Flex, and Mitchum.
Key Points
New CEO: Revlon is finally starting to turn the corner on a 3-year makeover, pun intended. Under the leadership of Jack Stahl, who joined the co as president and CEO in 2002, Revlon has strengthened its brand names, forged stronger relationships with its retail partners, introduced new product lines and restructured its balance sheet, according to the Financial Times.
Milestone: The co achieved an important milestone this week. It reported its first profitable quarter in six years.
Catalyst: At Briefing.com, we have digested and analyzed thousands of earnings reports over the years. A significant trend we have noticed is that the first quarter a company posts a profit or becomes cash flow positive that it becomes an important catalyst for the stock. Aside from the obvious benefits from improving performance, clearing that hurdle opens the stock to more institutional buyers that may be barred from buying cos that are not profitable or cash flow negative.
Consumer Products: The consumer product area is a good place to be. Procter & Gamble (PG) recently made a huge splash with its purchase of Gillette (G). This could spark interest in other names in the consumer product space. Revlon could be attractive given its leading brands in the mass-market segment.
New Products: Also this week, Prudential raised its target to $3.50 form $3 on early indications the 2005 new products are "doing well" in the marketplace.
Leading Market Positions: Despite plenty of competitors in cosmetics, such as Estee Lauder, Avon, L'Oreal, and Mary Kay, Revlon has a leading market positions in a number of its principal product categories in the US mass-market distribution channel, including the lip, face makeup and nail enamel categories.
Pullback: The stock pull backed today as a result of its 10-K which was filed this morning. The co disclosed that it has identified a significant deficiency in its internal control over financial reporting which it considers to be a "material weakness." Specifically, it relates to the co's controls over the review and validation of estimates of sales returns. In particular, in 2004, an error of approx $1.2 mln in the estimate of the sales return calculation for one of its large customers was not detected in the normal operation of these controls. That customer acquired a significant number of stores in 2004 and Revlon has determined that inventory of some of those newly-acquired store locations was not included in the data made available for estimating the reserves for sales returns. As a result, Revlon understated its estimates of the sales returns... Obviously, it's not good news but bear in mind the co is estimated to post sales of $1.3 bln this year. Also, in Q1, the co says it has implemented additional controls and procedures to remediate this deficiency. Furthermore, Revlon says issue won't result in restatement, according to Dow Jones.
Bottom Line: History shows that when a company swings back into profitability following a long lull, it often acts as a catalyst. New management coming in to turn the business around also helps. The stock has been slowly trending higher and broke above resistance of $2.75 on strong volume. Also, the PG/G merger could keep the focus on the consumer product space for potential consolidation. Revlon is by no means out of the woods, especially given its high debt levels, but there are signs it could make for a nice turnaround play.
If you have any ideas, comments, or questions, please email rreid@briefing.com.
REV -- One Year Chart
[BRIEFING.COM -- Robert J. Reid] History shows that when a company swings back into profitability following a long lull, it often acts as a catalyst. New management coming in to turn the business around also helps. The stock has been slowly trending higher and broke above resistance of $2.75 on strong volume. Also, the PG/G merger could keep the focus on the consumer product space for potential consolidation. Revlon is by no means out of the woods, especially given its high debt levels, but there are signs it could make for a nice turnaround play.
Background
Revlon (REV 2.79 -0.15) is a worldwide cosmetic, skin care, fragrance, and personal care products company. The co's brands include Revlon, Almay, Ultima, Charlie, Flex, and Mitchum.
Key Points
New CEO: Revlon is finally starting to turn the corner on a 3-year makeover, pun intended. Under the leadership of Jack Stahl, who joined the co as president and CEO in 2002, Revlon has strengthened its brand names, forged stronger relationships with its retail partners, introduced new product lines and restructured its balance sheet, according to the Financial Times.
Milestone: The co achieved an important milestone this week. It reported its first profitable quarter in six years.
Catalyst: At Briefing.com, we have digested and analyzed thousands of earnings reports over the years. A significant trend we have noticed is that the first quarter a company posts a profit or becomes cash flow positive that it becomes an important catalyst for the stock. Aside from the obvious benefits from improving performance, clearing that hurdle opens the stock to more institutional buyers that may be barred from buying cos that are not profitable or cash flow negative.
Consumer Products: The consumer product area is a good place to be. Procter & Gamble (PG) recently made a huge splash with its purchase of Gillette (G). This could spark interest in other names in the consumer product space. Revlon could be attractive given its leading brands in the mass-market segment.
New Products: Also this week, Prudential raised its target to $3.50 form $3 on early indications the 2005 new products are "doing well" in the marketplace.
Leading Market Positions: Despite plenty of competitors in cosmetics, such as Estee Lauder, Avon, L'Oreal, and Mary Kay, Revlon has a leading market positions in a number of its principal product categories in the US mass-market distribution channel, including the lip, face makeup and nail enamel categories.
Pullback: The stock pull backed today as a result of its 10-K which was filed this morning. The co disclosed that it has identified a significant deficiency in its internal control over financial reporting which it considers to be a "material weakness." Specifically, it relates to the co's controls over the review and validation of estimates of sales returns. In particular, in 2004, an error of approx $1.2 mln in the estimate of the sales return calculation for one of its large customers was not detected in the normal operation of these controls. That customer acquired a significant number of stores in 2004 and Revlon has determined that inventory of some of those newly-acquired store locations was not included in the data made available for estimating the reserves for sales returns. As a result, Revlon understated its estimates of the sales returns... Obviously, it's not good news but bear in mind the co is estimated to post sales of $1.3 bln this year. Also, in Q1, the co says it has implemented additional controls and procedures to remediate this deficiency. Furthermore, Revlon says issue won't result in restatement, according to Dow Jones.
Bottom Line: History shows that when a company swings back into profitability following a long lull, it often acts as a catalyst. New management coming in to turn the business around also helps. The stock has been slowly trending higher and broke above resistance of $2.75 on strong volume. Also, the PG/G merger could keep the focus on the consumer product space for potential consolidation. Revlon is by no means out of the woods, especially given its high debt levels, but there are signs it could make for a nice turnaround play.
If you have any ideas, comments, or questions, please email rreid@briefing.com.
REV -- One Year Chart
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