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Investing.com - Barclays (LON:BARC) downgraded L’Oreal SA (EPA:OR) (OTC:LRLCY) from Overweight to Underweight and lowered its price target to EUR325.00 from EUR384.00 on Tuesday. The beauty giant, currently valued at $231.8 billion, maintains impressive gross profit margins of 74.2% and has shown revenue growth of 5.6% over the last twelve months.
The downgrade comes as Barclays noted L’Oreal’s beauty market outperformance declined in 2024 to 1.1x, below the company’s 20-year average of 1.2x and 30-year average of 1.4x, suggesting a narrowing growth gap between the group and its peers.
Barclays identified five key factors behind its reduced enthusiasm: pressure points in US and China markets, e-commerce channel shifts disrupting points of sale, numerous new entrants to the beauty category, disruptive trends within beauty routines, and competition from lower-priced alternative products.
The investment bank forecasts FY25E like-for-like growth of 4.1% for L’Oreal, in line with Bloomberg consensus of 4%, and 5.2% for FY26E, slightly below consensus estimates.
The new price target of EUR325 places L’Oreal at 24x FY26E price-to-earnings multiples, which Barclays noted is one of the lower price targets on Wall Street.
In other recent news, L’Oreal announced it will acquire a majority stake in the British skincare brand Medik8, aiming to bolster its Luxe portfolio. The acquisition is expected to finalize in the coming months, pending regulatory approvals, with Inflexion retaining a minority stake. Meanwhile, L’Oreal’s recent sales performance has been noteworthy, with a significant boost attributed to strong sales in China despite a slowdown in the US market. This has led analysts to express cautious optimism about a potential recovery, as noted by Evercore ISI and Deutsche Bank (ETR:DBKGn). Deutsche Bank, however, reduced its price target for L’Oreal to €265, maintaining a sell rating.
Goldman Sachs reaffirmed its Buy rating on L’Oreal, maintaining a price target of EUR430, following first-quarter sales that exceeded expectations. The company’s organic sales growth reached +3.5%, surpassing the Goldman Sachs and Visible Alpha Consensus projection of +1%. L’Oreal’s Luxe segment saw a +5.8% sales increase, driven by strong fragrance portfolio growth, while the Consumer Products division grew by +2.3%. The Dermatological Beauty division also reported a +2.7% growth, highlighting robust performance in Emerging Markets and North Asia. These developments suggest a stable outlook for L’Oreal, as it navigates through market challenges.
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