Ahead of the Bell: Analyst upgrades Sally Beauty

Sally Beauty Holdings Inc. enters 2014 with several factors poised to help turn around the cosmetic retailer's business, according to a Sterne Agee analyst who raised his rating on the shares.

Analyst Ike Boruchow said in a Tuesday morning research note that new and improved brands as well as better marketing will help the Denton, Texas, company. He raised his rating on the stock to "buy" from "neutral."

Sally Beauty sells cosmetics and beauty supplies to both consumers and professionals. It operates through two segments, Sally Beauty Supply and Beauty Systems Group.

Boruchow noted that the company's stock has dropped since he raised his estimates and target price for the shares at the start of the year. The analyst said that creates a compelling valuation for the shares.

He said he believes that the Sally Beauty Supply business has bottomed out, and new brands like OPI nail products offered in its stores should help reinvigorate that segment. Boruchow also noted that the company reverted last summer back to a targeted marketing approach that focused on sending direct mailers to people with the highest probability of becoming Sally customers. He expects that the business will likely start benefiting from that.

Company shares closed at $27.65 on Monday and have already dropped more than 8 percent so far this year.