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On Tuesday, Berenberg analysts downgraded L’Oreal SA stock from a ’Buy’ to a ’Hold’ status and reduced the price target to €385.00 from the previous €454.00. The adjustment reflects a cautious outlook on the global beauty market’s growth and L’Oreal’s potential performance. According to InvestingPro data, L’Oreal currently trades at a P/E ratio of 29.2x, suggesting a premium valuation relative to its near-term earnings growth potential.
The revised stance by Berenberg comes amid expectations of a slower growth rate for the global beauty market in 2025, which analysts predict at 3.7%, below the 4-4.5% growth rate anticipated by L’Oreal’s management. This discrepancy suggests potential downside risks to the consensus organic sales growth forecasts and could dampen investor sentiment. The company maintains impressive gross profit margins of 74.2% and has demonstrated consistent revenue growth with a 5-year CAGR of 8%.
The firm anticipates heightened competition in the beauty industry, especially within the dermatological and mass beauty segments. This increased competition is likely to constrain L’Oreal’s market outperformance, with projections indicating only a 0.4% advantage in 2025, a significant drop from the 0.7-4.4% range seen in recent years.
Despite the near-term challenges, Berenberg expects the global beauty market to pick up pace again starting from 2026, with an estimated growth of 4.5%. For L’Oreal, analysts foresee an acceleration in organic sales growth to 5.7% at that time. However, they note that these growth projections for 2026 seem to be already factored into the consensus.
In their assessment, Berenberg referenced the ’Better, Faster, Stronger’ framework, wherein L’Oreal scored approximately 8 out of 15. This score supports the analysts’ belief that L’Oreal will continue to grow faster than the overall market in the medium term, despite the near-term pressures and market dynamics. InvestingPro analysis reveals additional insights about L’Oreal’s financial health and growth potential, with over 10 exclusive ProTips available to subscribers, covering everything from dividend stability to market positioning.
In other recent news, L’Oreal SA reported its full-year 2024 results, revealing a mixed performance against market expectations. The company’s like-for-like sales growth in the fourth quarter was 2.5%, which fell short of the Visible Alpha consensus forecast of 3.9%. However, L’Oreal’s actual sales for Q4 2024 reached €11,081 million, surpassing consensus estimates by 2%. The operating profit for the fiscal year totaled €8,688 million, aligning with expectations, and the adjusted earnings per share (EPS) for FY24 was €12.66, 4% higher than the consensus forecast.
In response to these results, Berenberg analysts lowered their price target for L’Oreal to €454 from €502, maintaining a Buy rating. Stifel analysts also cut their price target from €410 to €395, retaining their Buy rating, while noting the company’s robust Luxe segment sales in the United States during November and December. Meanwhile, Bernstein SocGen Group downgraded L’Oreal’s stock rating from Outperform to Market Perform, adjusting the price target to €380 from €430. This downgrade comes amid expectations of a challenging 2024 and a normalization year for the beauty industry in 2025.
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