Avon Downgraded by UBS

Now that Coty’s $10 billion bid for Avon Products is history, the company has to face some stark realites according to one analyst.

UBS Securities analyst Nik Modi on Monday cut his rating on the stock to “sell” from “neutral,” noting “it will become obvious that any creditable plan to sustainably fix Avon will require a substantial cut to Avon’s midterm [earnings per share] power.”

Modi said Avon’s four “major problems” were “uncompetitive” pay to its representatives, inadequate information technology systems, rising costs in emerging markets and legal issues surrounding foreign bribery allegations.

“We agree that Avon is fixable,” Modi said. “Looking at other direct sellers — domestically and internationally — it is clear that the direct-selling business model still works, especially for beauty products in emerging markets. And while [the new chief executive officer] Sheri McCoy and [executive vice president] Kimberly Ross seem like capable executives, we believe the issues at Avon will take time and lots of money to fix.”

The analyst has a 12-month target price of $13 on the stock, which fell 1.1% to $16.77 Monday.

Avon stood out in what was generally an up market on Monday. The S&P Retail Index rose 0.8 percent, or 4.59 points, to 595.37 as the Dow Jones Industrial Average gained 1.1 percent, or 135.10 points, to 12,504.48.