Coty Inc.'s Credit Upgrade and Strategic Deleveraging: A Path to Enhanced Creditworthiness and Undervalued Equity

The recent credit rating upgrades for Coty Inc. signal a pivotal shift in the company's financial trajectory, reflecting years of disciplined deleveraging and operational restructuring. As major rating agencies like , S&P, and Moody's acknowledge Coty's progress, investors must assess how these developments align with the company's long-term creditworthiness and equity valuation potential.

Credit Rating Upgrades: A Validation of Strategic Discipline

Coty's credit profile has improved markedly since 2020, . Fitch affirmed Coty's rating at 'BB+' with a stable outlook in September 2025, noting that a potential upgrade to 'BBB-' could follow if the company sustains its organic top-line growth and margin expansion. Similarly, S&P revised Coty's outlook to stable, citing its focus on debt reduction and asset sales. , which has upgraded Coty's ratings six times since FY20, highlighted the company's five-year transformation as a catalyst for improved financial resilience. These upgrades underscore a consensus among rating agencies that Coty's deleveraging efforts-driven by asset divestitures and cost-cutting-have significantly reduced its credit risk.

Strategic Deleveraging: Asset Sales and Operational Efficiency

At the core of Coty's transformation is a strategic deleveraging program centered on asset sales and operational improvements. The 2025 sale of its remaining stake in Wella to . This transaction, part of a broader initiative to simplify Coty's portfolio, has allowed the company to refocus on high-growth segments like prestige fragrances, which delivered double-digit growth in 2025.

Cost-cutting measures have further bolstered Coty's financial health. By FY25, adjusted EBITDA margins reached 18.4%, . , despite challenges in the U.S. mass beauty market and China. The company's strategic review of its mass color cosmetics and Brazil businesses also signals a commitment to unlocking value through targeted divestitures.

Equity Valuation: A Tale of Two Metrics

While Coty's credit metrics have strengthened, its equity valuation remains a mixed picture. On one hand, the stock appears undervalued by traditional metrics. A discounted cash flow (DCF) analysis suggests Coty is trading at a 66.3% discount , . .

On the other hand, , reflecting lingering market skepticism about its ability to sustain cash flow growth. Analysts have set a wide range of price targets, . While most analysts have issued "Hold" ratings, the disparity in price targets highlights diverging views on Coty's future. For instance, following the Wella sale, whereas others remain optimistic about the company's fragrance-led growth.

Risks and Opportunities

Coty's path forward is not without risks. The mass beauty market remains volatile, and its reliance on prestige fragrances exposes it to shifting consumer preferences. However, the company's deleveraging has created a more agile balance sheet, enabling it to pursue strategic opportunities such as bolt-on acquisitions or R&D investments in high-margin categories.

From a credit perspective, Coty's stable outlook and reduced leverage position it to withstand macroeconomic headwinds. For equity investors, the key question is whether the market will eventually recognize the intrinsic value embedded in Coty's transformed business model.

Conclusion

Coty Inc.'s credit rating upgrades and deleveraging initiatives represent a significant milestone in its five-year transformation. While the company's equity valuation remains depressed relative to its fundamentals, the alignment of credit agencies and analysts suggests a potential inflection point. Investors who can stomach near-term volatility may find compelling value in a business that is now better positioned to capitalize on its strengths in the global fragrance market.