Update on Revlon long thesis

June 17, 2019 | RP
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In March 2019, shares of Revlon (REV) briefly plunged from $27 to below $16 in extended trading following its (as usual) weak quarterly results. During the weakness, majority shareholder Ron Perelman resumed his (as usual) purchase of additional Revlon shares. Thereafter, Revlon resumed its (as usual) rebound back to around $25. A nice upward move of more than 50% from those lows.

My current take. It still looks to me like Mr. Perelman wants to buy out the rest of Revlon that he does not already own. But as the float continues to dwindle, acquiring extra shares is getting more difficult. Mr. Perelman’s most recent purchases over the past two weeks are therefore occurring at higher prices than in the past. The so-called “floor” under Revlon shares is getting higher and this makes perfect sense.

I continue to believe that when this story finally plays out, the last few holders of Revlon will be selling their shares at prices in the $30-40 range. However, despite this expectation, I am not currently long shares of Revlon.

The Boogeyman. With Revlon, various “boogeymen” have repeatedly emerged, driving the share price sharply lower for brief periods of time. So I would rather wait to buy shares on the next dip rather than be long if such a dip happens yet again. It’s quite possible that I will miss a nice run from current levels around $24 up into the $30s. I am fine with that risk / reward trade-off. Past “Revlon boogeymen” have included things sharp earnings misses, public mentions of “standstills” and misguided shareholder concerns over “bond spreads” or debt covenants. After each of these scary-sounding boogeymen, the share price plunged, Perelman bought more shares and then the price rebounded sharply.

Return of the Boogeyman. Up until March 2019, Revlon shares were trading mostly in a range of $25-29, and notice that Mr. Perelman had bought no shares since the end of 2018. But then in March, Revlon announced disappointing earnings, that it was delaying its 10K and that the 10K would now contain a material weakness. The share price plunged. Perelman resumed buying. The share price rebounded.

So perhaps a better title for this article might be “Scared of the Boogeyman, Moxreports is flat on Revlon (for now)”

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