(News Bulletin 247) – The German bank has lowered its recommendation to “hold” on the French group and judges that its valuation now takes into account its defensive qualities as well as the reopening of China.

This is the big theme that carried the “KOHL” (Kering, L’Oréal, Hermès, LVMH), the stars of luxury and the Paris Stock Exchange: the reopening of China. The second largest economy in the world is hot on the heels of the United States as the leading luxury market. The lifting of the last health restrictions in the country at the start of the year logically boosted the prices of players in the sector.

However, this catalyst may now be well integrated into prices. Alexandre Baradez, market analyst at IG France, considers that this theme has been “fully played” by the market.

Deutsche Bank at least seems to agree on the L’Oréal file. The bank across the Rhine on Tuesday lowered its recommendation on the tricolor cosmetics giant to “buy” to “keep”, while leaving its target price unchanged at 410 euros.

Multiples that could find themselves under pressure

The research department continues to appreciate the long-term qualities of the company headed by Nicolas Hieronimus, which should, according to him, be able to outperform market trends in the event of an economic slowdown in the United States. Deutsche Bank has also modestly raised its like-for-like revenue growth forecast for the company to 4.7% for this year, from 4.2% in its previous estimate. It nevertheless expects a contraction in activity in the last quarter of 2023 (-0.8%).

Above all, Deutsche Bank believes that L’Oréal’s strengths are now well understood by the market. “The valuation of the company largely takes into account” the reopening of China and the defensive qualities of L’Oréal, underlines the German bank.

Based on a price of 410.10 euros (last Thursday’s close), Deutsche Bank observes that L’Oréal shares are trading at 33.7 times the expected earnings for 2024 against 21.6 times for its sector. , that is to say the “staples”, consumer goods, excluding tobacco.

Deutsche Bank expects this valuation multiple to come under pressure, with the stock already trading at high ratios relative to its historical record, it said.

As a result, the German bank no longer sees any absolute upside potential for the stock, which explains the downgrade in its advice.

See you on April 19

This lowering of recommendation weighs unsurprisingly on the action of the cosmetics group, without extreme gravity. Around 10:55 a.m., the L’Oréal share fell 1.07% to 412.7 euros, posting the second largest drop in a CAC 40 up slightly (+0.34%).

On Tuesday, Stifel, for its part, confirmed its recommendation for L’Oréal to buy, substantially raising its target price to 450 euros against 410 euros. The research department expects a 9.7% like-for-like growth of the company’s revenues in the first quarter. Stifel acknowledges that the group’s high valuation may raise questions from investors, but nevertheless considers it justified in view of the strong momentum of its sales, the acceleration of growth in China expected from the second quarter or even good visibility on its margins.

L’Oréal will publish its first quarter sales on April 19, after market close.