L’Oréal: Strong Premium Beauty Sales in the US and Europe Led by Fragrances, but China Remains Weak

Wide-moat L’Oréal delivered a 6% sales growth (8% in constant currency) in the first nine months. We attribute its resilient performance to a sharper focus on attractive subsegments (such as haircare and luxury fragrances), agile marketing, and expansion on Amazon, which have combined to more than offset persistent demand headwinds in China. Given healthy premium beauty demand in the US and Europe—in particular, booming trends in fragrances that should bode well for holiday sales—we view our 7% sales growth forecast for 2024 as achievable. We don’t plan any material changes to our EUR 410 per share fair value estimate based on our 10-year forecasts for high-single-digit sales growth and operating margins in the low 20s. Shares look undervalued.