L'Oréal: Record High Takes P/E To Near 50x; Downgrade To Neutral (Preview)

Company Update (OR FP) (Downgrade to Neutral)

Summary

• We are downgrading our rating on L'Oréal to Neutral due to valuation, after the stock gained 43% in 15 months to reach a new record.

• With shares now trading at near 50x 2020 EPS (and 45.8x 2019 EPS), a de-rating will likely offset most of the near-10% EPS CAGR we assume.

• As the market leader with a broad portfolio, L'Oréal can only outgrow the broader market (which historically grew at 4-6%) by so much.

• Our forecasts are based on a 37.5x P/E, a significant de-rating from the present but relatively high compared to the rest of our coverage.

• At €355.45, L'Oréal shares are expected to generate a total return of 14% (4% annualized, including 1% in dividends) by 2024 year-end.

Introduction

We are downgrading our rating on L'Oréal to Neutral, after the share price closed at a new record high of €355.45 in Paris on Monday (May 17).

Our Buy rating on L'Oréal stock was initiated in March 2020. Since then, L'Oréal shares have gained 43.1% (in Euros, with dividends), including 11.9% since we las…