We recently launched the coverage of L'Oreal with a
Trefis Price estimate of $22.70
, slightly above the current market price.
L'Oreal (
LRLCY
)
is a leading player in the hair and skin care markets and competes
with companies like Revlon (
REV
),
Avon (
AVP
)
, Proctor & Gamble (
PG
) and Estee Lauder (
EL
).
L'Oreal is the largest manufacturer of cosmetics in the world.
It manufactures and sells makeup, fragrances, skin care and hair
care products through 27 global brands and caters to consumers
across all income levels. L'Oreal's distribution channels span mass
volume retailers and e-commerce websites to upscale perfumeries,
pharmacies, department stores, and company-owned stores across the
globe.
We estimate the hair care products account for over 30% of
L'Oreal's stock while skin care products constitute 25% of the
stock price.
Below, we highlight the differences in the value contributions
of hair care and skin care product segments for L'Oreal, and
examine the impact of market share on the company's intrinsic stock
value.
+30% of Value - Skin Care, the Largest and Fastest
Growing Personal Care Segment
L'Oreal has a 13% share of the expanding Skin Care market, which
is worth over $90 billion and growing at over 5% year-on-year by
our estimates. We estimate that L'Oreal can gain market share
through extended periods of promotions and increased research and
development spending in the years ahead. The company is
well-positioned to benefit from a pickup in consumer spending given
its ability to reach a diversified consumer base through a variety
of price points.
Should the company's strategic efforts spur a 100 basis point
increase in 2013 market share beyond our estimated about 13%, we
estimate further upside potential of roughly 2%. The chart above
examines the impact of shifts in L'Oreal's Skin Care market
share.
+20% of Value - 2nd Globally in Hair Care
L'Oreal has a 23% share in the hair care product segment, which
is worth over $72 billion and growing at close to 2.6% year-on-year
by our estimates. We project that the company can grow its hair
care market share through strategic efforts and strong product
positioning as described above. The chart above shows the price
sensitivity of L'Oreal stock to forward shifts in its hair care
market share.
We estimate additional upside of nearly 2% given a 100 basis
point increase beyond our current 2013 estimate of 23.1%.
Both hair care and skin care segments have comparable EBITDA
margins (a measure of profitability) of close to 20%. The
difference in valuation is primarily attributable to separate
market shares in products segments of different sizes and growing
at markedly different rates. The relatively lower market share in
skin care is compensated by the higher market size of skin care
products along with close to double the growth rate of the skin
care product segment, due to anti-aging skin care products and skin
care focused on men.
You can view our complete analysis for L'Oreal
here.