On Sale: Use the Sell-Off to Follow Tiger Ratan's Nehal Chopra into Coty (COTY)

Nehal Chopra's Tiger Ratan hedge fund lost 6.6 percent in August but remains up 21.6 percent year to date, according to Reuters, outperforming nearly all of its peers. At 35, Chopra is considered one of the best stock pickers around. That's why when we saw an opportunity to own a recent portfolio addition of hers at a sharp discount we thought it should be highlighted.

The stock in question is beauty company Coty, Inc. (NYSE: COTY). Shares are down 18% from recent highs to its current price of $26.91.

While Chopra has been flipping her portfolio a lot recently, the fund maintains a few core positions. Coty may be in that camp as an important catalyst plays out.

In July, Coty announced that is signed a definitive agreement with Procter & Gamble (NYSE: PG) to merge 43 of its beauty brands with Coty in a Reverse Morris Trust transaction.

The deal is expected to more than double Coty's sales, EBITDA, and free cash flow.

Coty expects to realize approximately $550 million in total cost savings on an annualized basis over the next three years from the deal, including the $400 million in non-transferred costs and an incremental $150 million in additional cost synergies, equating to 10% of the acquired revenues.

Excluding the impact of transaction amortization, the combined pro forma increase to Coty’s FY15 earnings per share base is approximately $0.33 to $0.39, including the assumed three year implementation of full run-rate synergies. At the close of the transaction, Coty expects to increase its annual dividend to $0.50 per share.

While the merger is pending, the core business is also performing well. In the company's fourth quarter, adjusted net income was $29.7 million an increase from $9.9 million in the prior-year period. Adjusted earnings per diluted share of $0.08 increased 167% from $0.03 in the prior-year period.

Analysts see EPS from the legacy business of around $1.00 for FY16 and around $1.15 for FY17.

With earnings, Coty announced a $700 million share repurchase authorization. In addition, JAB Cosmetics B.V., Coty's largest shareholder, has advised the Company that it intends to purchase approximately 6 million Class A shares in the open market.

With Chopra's blessing, the pending transformational merger, solid legacy results, the new aggressive buyback plan, and support in the market from its largest shareholder, Coty may be a stock to add to your portfolio.

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