On Wednesday, L'Oreal SA (OR:FP) (OTC: LRLCY) received an upgrade in its stock rating by a Jefferies analyst from Underperform to Hold. Accompanying the upgrade, the analyst set a new price target for the beauty giant at €365.00, a slight increase from the previous target of €362.00.
The revision reflects a reassessment of L'Oreal's performance relative to its global Home and Personal Care (HPC) peers. The analyst noted a significant change in the company's market dynamics before and after 2018.
Since 2018, L'Oreal has not only seen a boost in market growth but has also increased its outperformance from about 10% between 2014 and 2017 to 30-40%.
Despite expectations for market growth to return to levels seen before 2018, the analyst believes L'Oreal will maintain its current gap in outperformance. The valuation of L'Oreal was a key factor in the determination of the new price target.
The target is based on a 26x target price-to-earnings (P/E) ratio or 16.3x enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA).
The upgrade and new price target are based on the premise that while market growth may normalize, L'Oreal's strong performance relative to the market can continue. This balance between market trends and company performance underpins the analyst's revised outlook for L'Oreal's stock.
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