Wide-Moat L’Oréal Propelled by Beauty’s Global Growth and Its Powerful Brands; Shares Expensive

L’Oréal overcame COVID-19 impacts in China and difficult macroeconomic conditions in Europe and North America to post 2022 results that largely met our estimates. While the near-term outlook is clouded as these external pressures continue, we believe the firm has good momentum across its vast product portfolio and is poised to benefit from the growth of the beauty market and global middle class. Our wide-moat rating on L’Oréal is based on the power of its brands, its relationships with retailers, and the cost advantages that come with being the largest producer of beauty products. We expect to lift our EUR 318 fair value estimate on the company’s shares by a mid-single-digit percentage but would look for a more attractive entry point.