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We have review L’Oreal shares and feel comfortable with a price target of €195 on the stock.
About L’Oreal
L'Oreal S.A. is a French cosmetics company headquartered in Clichy, Hauts-de-Seine with a registered office in Paris. It is the world's largest cosmetics company and has developed activities in the field of cosmetics, concentrating on hair colour, skin care, sun protection, make-up, perfume and hair care.
Rationale for our overweight recommendation:
• We have a price target of €195 on the stock which represent a potential upside of 6%
• The shares are trading on an indicative gross dividend yield of 2%
• It’s a world leader in beauty products, currently present in 130 countries
• The two largest departments have constant growth. Skin care and Make-up. We expect to see further growth in these departments particularly from emerging markets
• Its last quarter was record in growth in Sales and EBIT and expect further improvement going forward
• We expect a strong growth in combination to the development of the Asian market. Asia middle class purchasing power is increasing and this is affecting positively L’Oreal revenue
• L’Oreal has seen a really large skin care growth. (Mostly by the Asian Market). China, Hong Kong, Japan
• L’Oreal pulled their weight with Lancome, growing in territory
• L’Oreal is leader in the ecommerce of beauty products. We also expect that this growth will lower cost as time goes by slowly
• The four largest markets of L’Oreal are USA, CHINA, FRANCE and GERMANY. All of them countries with strong economies
Risks to the model:
• A slowdown in global growth particularly in Asia where the company is benefitting most from growth
• Slower growth from online sales
• A global recession
• Currency headwinds
• Increased competition
Conclusion
L’Oreal should be considered as a core holding in a portfolio. For the long term investor, the stock offers attractive capital gains and a decent dividend yield. Additional positives in favour of this investment is a management team which is working to improve the efficiency of the company and a business model which is cyclical and will benefit from an improvement in global growth.
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