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Monday, July 31, 2006

Will Private Equity Call On Avon?

Stocks: (AVP)

Avon's earnings were not particularly good, but the company has the advantage of being able to say that they were not supposed to be. The company has cut 10% of its work force and several layers of management, and the costs of much of that restructuring were in the quarterly numbers out today.

Revenue at the company did rise 5% over the same period last year, hitting $2.08 billion. Operating profit was down 35% to $225 million, but some of the drop can be attributed to restructuring.

The company's cash position equals its debt. The cash flow from operations for the quarter was almost $290 million. Shareholder equity is $1 billion.

The question is whether a private equity firm would pay 13 times net tangible book value.

If the company can be engineered as a private enterprise to produce cash flow of $1.5 billion, the company's $17 billion market cap may not be a huge obtacle. The stock now trades at $30. If it moves closer to its 52-week low at $24.33, it will be on a lot of radar screens.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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