A top-ranked sell-side analyst is even more convinced that investors should sell Revlon's bonds after the company's recent earnings call, but an independent analyst argues that the bonds are undervalued. "The main thing I saw [after looking at the latest earnings report] is significant cash burn," says George Chalhoub, analyst at Deutsche Bank, and a first-teamer on the Institutional Investor 2001 All-America Fixed-Income Research Team. Though Chalhoub believes Revlon's new management team is capable, he doubts that Jack Stahl, the new ceo, has enough time and cash to turn the company around. He argues that without a cash infusion into the company, Revlon could run out of money as soon as the first quarter of next year. "These guys are producing products left and right but the top line is still anemic," he says.
Revlon's 8.625% notes of '08 were trading at 46 last Monday. Chalhoub says he would not recommend them at any price, as he believes they are worthless in the event of a bankruptcy. As for the 8.125% notes of '06, Chalhoub says they would need to drop to 43 before he would consider changing his recommendation.
Terry Dwyer, analyst at KDP Investment Advisors, an independent research shop, has a buy on both issues, however. He believes Chalhoub's EBITDA projection of $171.6 million is too low. Dwyer points out that Revlon has already generated some $70 million in the first half of the year, and expects the numbers to improve considerably in the second half due to the Christmas season. He declines to give his EBITDA projections, or to say by how much he expects the bonds to appreciate, however.