L’Oréal: Shares Down 24% in 2024 on Short-Term China, Tax Fears

Company Update (OR FP) (Buy): P/E is now ~28x, cheap for a business with such resilience and long-term growth.

Highlights

• Sales grew 6.0% in Q1-3 as L’Oréal again gained share, including in China.

• U.S. market still growing, and L’Oréal has growth sources other than China.

• We see 8% long-term EPS growth and a 32.5x P/E; Dividend Yield is 2.0%.

• French budget is in flux; last proposal implied temporary 4% EPS hit.

• At €337.40, we see a 59% total return (17.3% p.a.) by 2027 year-end. Buy.

Introduction

We review our Buy rating on L’Oréal, which has fallen 24% in the past year, back to roughly it was at the start of 2023:

L’Oréal Share Price (Last 5 Years)

Source: Google Finance (30-Dec-24).

L’Oréal is a mid-sized position in our “Select 15” model portfolio, initiated in September and expanded in October; we also hold L’Oréal shares in real life. Within our research, our current Buy rating on L’Oréal was re-initiated in April 2024, and shares have lost 16.6% since then (after dividends). We last wrote about L’Oréal in September.

L’Oréal is one of the highest-quality businesses in our coverage, thanks to the Beauty market’s long-term growth and L’Oréal’s competitive advantages, and shares are undervalued due to temporary macro and tax concerns. Our forecasts show a mid-teens annualized return over the next few years, driven mostly by earnings growth.

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