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Investing.com -- Bank of America (BofA) has added L’Oreal (EPA:OREP) stock to its Europe 1 list of top investment ideas, emphasizing the company’s leading position in the structurally growing beauty market. The stock is also featured on BofA’s "25 Stocks for 2025" list.
In a note published Tuesday, BofA analysts said that L’Oréal’s recent de-rating presents a buying opportunity. The stock trades at 27x estimated 2025 earnings, marking a 15% discount compared to its historical average.
Additionally, its premium to other high-quality compounders, such as LVMH (EPA:LVMH), has narrowed significantly.
“The luxury sector has shown that a better-than-expected revenue trend in an attractive category can result in a quick re-rating, and we believe the same can be said for L'Oréal” BofA analysts wrote.
Beauty industry data suggests improving trends in the fourth quarter of 2024, following a slowdown earlier in the year. BofA’s report highlights that “North Asia and the US are showing signs of strength,” while Europe’s softer performance stems from a higher comparison base.
Moreover, the SAPMENA region (South Asia Pacific, Middle East, North Africa) is expected to return to double-digit growth, supported by favorable consumer demand.
According to BofA, innovation is set to play a crucial role in L’Oréal’s 2025 performance.
“Beauty is an offer-driven market, and therefore demand can improve as innovation picks up. We believe this will be a key theme for L'Oréal in 2025,” the bank explains.
It also notes higher average selling prices (ASP) in L’Oréal’s luxury division, particularly in fragrances, while its billionaire brands like La Roche-Posay and SkinCeuticals continue to drive growth in the derma segment.
Reflecting its bullishness, BofA analysts slightly raised their earnings per share (EPS) estimates for 2024 and 2025, citing improvements in revenue trends and a reduction in French tax charges. The price objective has been adjusted to €420 from €450, implying a potential upside of 17% from the current share price.