L’Oréal: New 52-Week Low, but Fears on China Likely Misplaced

Company Update (OR FP) (Buy): Shares are a good defensive asset, with a reasonable valuation, solid long-term EPS growth and minimal capital risk.

Highlights

• Shares are back to Jan-23 levels and at ~30x 2023 EPS (likely ~28x 2024).

• H1 results showed sales growing 7%+; EPS growth looks worse due to M&A.

• Sales growth was broad-based and in spite of a market decline in China.

• L’Oréal expects H2 to be similar; China sales are now smaller than EM’s.

• At €365.90, we see a 54% total return (14.4% p.a.) by end of 2027. Buy.

Introduction

We review our Buy rating on L’Oréal after shares have recently fallen to a new 52-week low; the share price is now 9.5% lower than a year ago and back to levels last seen in January 2023:

L’Oréal Share Price (Last 5 Years)

Source: Google Finance (16-Sep-24).

We have added L’Oréal as a small position in our “Select 15” model portfolio this month. Before that, we last published research on L’Oréal in April, after a gap of nearly a year; L’Oréal shares have fallen 9.7% since our April article, largely due to investor concerns about a weak beauty market in China and a possible slowdown in the U.S. in our opinion.

We continue to believe L’Oréal shares represent a good defensive investment, with annualized returns almost certain to exceed 10% annually over time and minimal capital risks.

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