L'Oréal: Stock Still Down 13% Year-To-Date Despite Strong Q3

(Preview) Company Update (OR FP) (Buy)

Summary

• L'Oréal's strong sales growth has continued into Q3, despite renewed COVID restrictions in China, thanks to its broad portfolio.

• The company has clearly outperformed arch rival Estée Lauder operationally, including in the key Chinese market.

• Including currency tailwinds, we believe EPS can grow 25% this year, giving the stock a 32x P/E, reasonable in our view.

• Management is still bullish on the Chinese consumer, and we agree. L'Oréal is less exposed to China than Estée Lauder.

• With shares at €350.25, our forecasts show a total return of 36% (10.6% annualize) by 2025 year-end. Buy.

Introduction

We review our investment case on L'Oréal SA, which we believe to be one of the highest-quality franchises in public markets and to still offer a 10%+ annualised return to investors.

Our current Buy rating on L’Oréal followed an upgrade in March. Since then, L’Oréal shares trading in Paris have gained 5.0% (including a dividend) in euros, though the share price remains down 13% in the past year. …