Physicians Formula Holdings Inc. closes up on upgrade
Shares of Physicians Formula Holdings Inc. (Nasdaq: FACE) closed higher today after Citigroup upgraded the cosmetics company to a “buy” rating from “hold” and increased its target price to $13 from $12.
Citigroup analyst Wendy Nicholson said she thinks the stock has bottomed out from a fundamental and valuation standpoint and “now offers an attractive entry point.”
Shares of Physicians Formula have declined 60% since April on account of negative earnings revisions, poor communication from management and an overall weaker consumer spending environment, according to Nicholoson. The company now trades at 13 times Nicholson’s revised calendar year 2008 EPS estimate.
Despite the negatives, the analyst said that she still expects the company to deliver 16% sales growth in calendar year 2008, which according to Nicholson is the most robust top line growth in Citigroup’s coverage universe.
Despite competing with established players like Loreal and Cover Girl in a highly competitive industry, Nicholson said she thinks Physicians Formula’s differentiated product offering and small size give the company ample room to grow and that it could become a buyout target down the road.
Nicholson said the company has a “game changing” product in its pipeline that is expected to be unveiled in September. According to Nicholson, industry sources speculate the product line could consist of organic cosmetics.
Nicholson is raising her earnings estimates for the second quarter and full year of 2008 to $0.02 and $0.69, respectively. The consensus of four analysts polled by Thomson Financial is for earnings of $0.72 per share for fiscal year 2008.
Shares of Physicians Formula closed up $0.94, or 10.94% to $10.04 on Monday.
