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On Monday, Stifel analysts adjusted their outlook on L’Oreal SA (OR:FP) (OTC: LRLCY), lowering the price target from EUR 410.00 to EUR 395.00, whilst retaining a Buy rating on the company’s shares. The revision follows L’Oreal’s weaker-than-anticipated like-for-like (LFL) sales growth in the fourth quarter of 2024, particularly noting underperformance in North America and North Asia. According to InvestingPro data, L’Oreal maintains impressive gross profit margins of 74.2% and has established itself as a prominent player in the Personal Care Products industry.
The analysts observed that despite the sluggish LFL growth, L’Oreal’s Luxe segment in the United States experienced a robust increase in sales during November and December, with double-digit rises. They also highlighted changes in the global sales structure, with the Chinese market’s contribution to L’Oreal’s total sales decreasing to 17% in 2024 from approximately 20% in 2023. The company’s overall revenue growth stands at 5.6% for the last twelve months, with InvestingPro analysis suggesting potential upside based on their Fair Value calculations.
The report further detailed the state of year-end trade stock levels in Asia’s travel retail sector, describing them as healthy. Stifel’s analysts pointed out L’Oreal’s effective management of selling, general, and administrative expenses (SG&A), which contributed to a stable margin performance. This was in spite of the significant slowdown in both the Chinese market and the Dermatological Beauty sector.
In their commentary, the analysts stated, "We reduced our PT to €395 (from €410). Still, we retained our Buy rating as we see a soft start to 2025 baked into buy-side expectations, gradual LFL acceleration as the year progresses and further margin expansion." This suggests that while the initial outlook for 2025 might be cautious, there is an expectation for L’Oreal’s financial performance to strengthen as the year unfolds, with the potential for margins to widen further. The company’s strong financial health is reflected in its 34-year track record of maintaining dividend payments and moderate debt levels, as highlighted by InvestingPro’s analysis.
"In other recent news, L’Oreal experienced a rating downgrade from Outperform to Market Perform by Bernstein SocGen Group. The adjustment, which also revised the price target to EUR 380 from EUR 430, is based on expectations of a normalization year for the beauty industry in 2025. Bernstein analysts acknowledge L’Oreal’s strong long-term growth prospects but anticipate a potential impact on the brand’s performance due to the recent slowdown of CeraVe, a popular skincare line. As a result, Bernstein projects L’Oreal’s organic growth forecasts to be approximately 150 basis points below the consensus for the upcoming quarters. The new price target is based on a slightly reduced enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 15.0x, reflecting a revised forward next twelve months (NTM) +1 EBITDA estimate of EUR 11,627 for L’Oreal. These recent developments suggest a more cautious outlook on L’Oreal’s near-term performance."
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