Amazon (AMZN) Could Buy Sally Beauty Holdings (SBH) - D.A. Davidson

(Updated - October 19, 2017 1:28 PM EDT)

Sally Beauty Holdings (NYSE: SBH) shares are on watch mid-day Thursday as D.A. Davidson & Co analyst Linda Bolton Weiser speculates Amazon (NASDAQ: AMZN) could buy the company.

Bolton Weiser highlights that Ulta Beauty (ULTA) is trading +4% intra-day Thursday on speculation that Wal-Mart (WMT) will acquire the company. She notes beauty has been a hard category to crack for Amazon and highlights the online giant has entered a partnership with Sally Beauty to test in the Dallas area same-day delivery of beauty orders fulfilled by Sally Beauty retail stores.

"Sally Beauty's uniquely high gross margin of 55% and high number of U.S. retail stores (over 2,900) were key reasons why SBH ended up as the beauty partner of AMZN," she commented.

In total, Bolton Weiser lists 7 points to consider in her bullish view of Sally Beauty with shares down 7% as her note was distributed:

Number 1: New loyalty program would enhance gross margin.

Number 2: Positive changes in mix shifts are beneficial to gross margin.

Number 3: Duking it out on price with Walmart (WMT) on non-exclusive items is not SBH's strategy.

Number 4: Major innovation launching in nail could boost category growth.

Number 5: Insider stock purchase at around $17.50/share.

Number 6: Cash spent on share repurchase in FY18 will NOT be as low as $160M

Number 7: Will Amazon (AMZN) buy SBH as its beauty play?

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