BMO Capital Upgrades Elizabeth Arden (RDEN) to Outperform; Early Stages of a Revival

(Updated - February 13, 2015 12:31 PM EST)

BMO Capital analyst Connie Maneaty upgraded Elizabeth Arden (NASDAQ: RDEN) from Market Perform to Outperform Friday, while boosting her price target from $15 to $20. The analyst believes the company is in the early stages of a revival.

Maneaty notes that while shares are down 70% from its peak in December of 2012, at CY2015E EBITDA of $73 million at an average multiple of 10.5x, the stock may still be overpriced. That said, the analyst notes significant changes are underway.

EVP International Eric Lauzat (October 2013) and CFO Rod Little (April 2014) have brought fresh insight, according to the analysts. "A slimmed-down Elizabeth Arden will be relaunched in the fall with a message (active skin care for modernwomen) crafted by ad agency Air Paris featuring super model Karlina Caune," the analyst further notes. Meanwhile, fragrance sales will focus on “key pillars."

Maneaty also notes "changes that have assigned responsibility to exclusive distributors in international markets and in China to RDEN’s affiliate could pay off with better margins and inventory management." Benchmarking analysis being done by The Hackett Group should be done within weeks, she notes.

More efficient working capital management is also a real possibility. "We think Rhone’s August investment stabilized the stock (and dilution from its conversion of preferred into common stock could potentially be offset by a buyback from stronger cash flow); 80% of the shares are now held by the top five institutional shareholders and insiders," she said. "Earnings improvement, however variable, could be reflected quickly in a less liquid share base."

For an analyst ratings summary and ratings history on Elizabeth Arden click here. For more ratings news on Elizabeth Arden click here.

Shares of Elizabeth Arden closed at $15.69 yesterday.

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