BofA sees 15% upside in L’Oréal as U.S. and China demand shows recovery

Investing.com -- BofA Securities has reiterated its buy rating on L’Oréal (EPA:OREP), assigning a price objective of €420, which represents a 15% upside from the current share price of €369, in a note dated Wednesday. 

The stock remains on BofA’s “25 stocks for 2025” and its Europe 1 list of top ideas, supported by expectations of accelerating revenue trends in key markets.

L’Oréal reported 3.5% organic revenue growth in the first quarter of 2025. Adjusted for IT-related phasing effects, this equated to 2.6%, a figure that drew market attention. 

However, BofA analysts noted this figure underrepresents the company’s underlying momentum due to high year-ago comparables in China and dermatological sun care. 

Adjusted for those, revenue growth was closer to about 4.3%, suggesting the business does not need to accelerate meaningfully to meet its full-year guidance.

Second-quarter momentum is expected to improve. BofA forecasts organic revenue growth of 3.2%, or 4.1% when excluding phasing effects. 

The U.S. is showing signs of recovery, supported by aggregated card data and recent comments from L’Oréal’s CEO, while China’s 618 shopping festival began strongly. 

In North Asia, a 4 percentage point improvement is forecast versus the previous quarter. North America is expected to improve by 2 points to 2.5%, driven by recovery in mass color cosmetics and CeraVe.

Valuation remains a key part of the upside case. The stock currently trades at 29x estimated 2025 earnings and 26x 2026 earnings, below its historical mid-cycle multiple. 

BofA sees room for a re-rating if revenue visibility continues to improve, especially in Asia. At the €420 target, L’Oréal would trade at 30x 2026 P/E.

Short interest stands at 1.8%, near a one-year high, and only 43% of analysts rate the stock a buy, reflecting cautious sentiment despite improving fundamentals. 

BofA’s 1H25 EBIT forecast is 4% above consensus, driven by lower SG&A costs and a variable cost structure that supports margin expansion even in a slower growth environment.

Full-year 2025 revenue is projected at €44.6 billion, with adjusted EBIT of €9 billion and earnings per share of €12.70. This implies a P/E of 29.1x and a dividend yield of 1.9%. Free cash flow yield is estimated at 3.2%.

L’Oréal’s international exposure is balanced across Europe, North Asia, and the Americas, with emerging markets making up 14%. Its brand portfolio includes 11 with annual revenue above €1 billion, such as L’Oréal Paris, Maybelline, and CeraVe.