L'Oréal: Strong Q2 Rebound From Prior Year Trough, But 51x P/E (Preview)

Company Update (OR FP) (Neutral)

Summary

• L'Oréal's like-for-like sales rebounded by 33.5% in Q2 2021, after a trough prior-year quarter, and was 8.4% higher than in 2019.

• L'Oréal grew significantly ahead of market, though growth rates differed by region and category, with some showing weakness.

• The strong year-on-year growth was largely a rebound from the COVID-impacted 2020; compared to 2019, total H1 sales were 6.6% higher.

• L'Oréal shares are trading at 50.8x 2019 EPS, and H1 2021 EPS was just  5.7% ahead of H1 2019. We believe the P/E is too high.

• With shares at €393.85, we expect them to be flat in the next few years, with the dividend giving a 1% annualized return. Avoid.

Introduction

We review L'Oréal's H1 2021 results released last Thursday (July 29).

We downgraded our rating on L'Oréal from Buy to Neutral in May 2021, after shares reached a new all-time high. L'Oréal shares had gained 43% (including dividends) in EUR in 15 months while Buy-rated in our coverage. Since our downgrade, L'Oréal's stock price has risen an…