By:
Gino F. Piscopo, AIM Student at Marquette University
Disclosure:
The AIM Equity Fund currently holds this position. This article was written by
myself, and it expresses my own opinions. I am not receiving compensation for
it and I have no business relationship with any company whose stock is
mentioned in this article.
Summary:
• L’Oréal ADR (LRLCY): Manufactures and sells beauty and hair products.
It operates through four segments: Professional Products, Consumer Products,
L’Oréal Luxe, and Active Cosmetics.
• 33.14% and 23.18% is
owned by Ms. Françoise Bettencourt Meyer and Nestlé, respectively. This has
consistently been beneficial to external shareholders due to their alignment of
interests and plethora of independent directors.
• World leader in beauty
which is their sole business in 150 countries.
• ESG rating of AAA and
received the first place price for gender equality in business.
• Strong growth in
developing countries ensured LRLCY has traded in line with the S&P 500 and
our international benchmark.
Key
points:
L’Oréal was first pitched in the fourth quarter of
2015 with a price target of $43.11. Still, much of the investment thesis is
still valid due to the alignment of interests between Ms. Françoise Bettencourt
Meyer, Nestlé, and external shareholders. Management has been able to
capitalize on growing beauty trends abroad. In 2018 the Asia/Pacific region
represented ~28% of sales compared to ~20% in 2015.
Additionally, with 505
patents they still have a moat surrounding their leading market place in the
world. This will allow LRLCY to continue to experience strong sales growth and
margin expansion.
As the most recognized
and world leading beauty organization, L’Oréal will be less affected by an
economic slowdown or recession because of the 150 countries they sell their
products in. On the other hand, if these developing countries continue their
strong growth LRLCY is posed to capitalize.
Lastly, L’Oréal’s ESG
rating has been unchanged at AAA since 2015. Management has strong initiatives
to capture demand for natural products. They have launch products like
Botanicals Fresh Care and Biolage R.A.W. in 2017 to suit the demands of their
consumers. Additionally, at the forefront of their annual presentation LRLCY
states they reduced CO2, waste, and water consumption by 77%, 37%, and 48%,
respectively.
What
has the stock done lately?
Since being pitch L’Oréal
has outperformed the market because of their patent moat and position in
emerging markets. We bought LRLCY around $35.48 and it currently trades at
$54.70 giving the international consumer staples sector within our fund
incredible performance.
Past
Year Performance:
LRLCY has increased 13.87% in the past year
and is up 19.02% year-to-date. Recent earnings releases have increased public
sentiment on this stock. L’Oréal is currently trading at a 34.14x P/E multiple
~50% higher than its 5yr average.
Source:
FactSet
My
Takeaway:
This stock has performed well since being pitched in
2015 and has increased ~19% just this year. Plus, by looking at their P/E
multiple LRLCY looks very expensive. Nonetheless, I still have faith this
company is in a good position to capitalize on continual growth in emerging
countries while also surviving an economic slowdown.
Source:
FactSet
