L’Oreal shares fall as JPMorgan places on negative catalyst watch

Investing.com -- L’Oreal SA (EPA:OREP) shares fell about 2% after JPMorgan placed the French cosmetics group on negative catalyst watch amid worries over slowing top-line growth and valuation concerns. 

The bank maintained its Underweight rating and set its December 2026 price target at €290, suggesting nearly 22% downside from Monday’s close.

JPMorgan expects L’Oreal’s second-quarter like-for-like (LFL) shares to decelarete to 0.7%, compared to 3.5% in Q1, and below consensus estimates of 2.7%.

The bank’s analysts warn that softness in Western Europe and the U.S. is likely to persist. They also flag a “structurally slower China, the deceleration of the fragrance boom while facing increasing competition from dupes, local players, and international players.”

Despite L’Oreal’s strong execution during the 2020–2024 period, the analysts believe the company’s revenue growth will normalize to 3–4% annually in 2025–2026, levels last seen in 2017.

JPMorgan notes that while online sales—boosted by launches at Amazon (NASDAQ:AMZN) Beauty—may outperform, they won’t be enough to offset muted offline trends and share losses. In North America and Europe, growth is expected to decelerate to 0.8% and 3% for the year, respectively.

For China, the market showed some signs of improvement in April, but JPMorgan remains cautious. The bank forecasts mainland China growth at just 1.5% and highlighted volatility around key sales events like the 618 festival.

The bank’s negative catalyst watch on L’Oreal shares also comes amid concerns over the sustainability of the company’s valuation premium.

With the stock at 27.4 times price-to-earnings (P/E) and 16.6x enterprise value-to-EBITDA, JPMorgan said the valuation is “once again elevated relative to growth delivery,” and warned the premium over European Household and Personal Care (HPC) peers could come under pressure.

“As we expect growth to slow and converge to EU peers at 4%, we see its valuation premium vs EU HPC is at 25-30% at risk,” the analysts said.

JPMorgan’s updated estimates reflect the more cautious outlook. They now expect LFL sales growth of 3% in 2025 and 4.0% in 2026, down from 3.5% and 5.0%, respectively. EPS estimates are broadly unchanged due to favorable currency effects.

L’Oréal is set to report second-quarter earnings on July 29.