Aggressive expansion into China that has lifted L’Oreal ( OTCPK:LRLCY ) is turning into a headwind for the company, according to RBC Capital Markets.
Equity analyst Emma Letheren noted that the company has outsized exposure in China after pushing into the market rapidly in recent years. While this push has helped the stock outperform many of its peers as of late, its strength in the market appears to be moderating in RBC’s estimation.
“We feel generally less enthused about L'Oréal's capabilities now that we understand its historically stunning outperformance was partly attributable to L'Oréal playing catch up. Particularly given ex-China, growth has not been that exceptional,” the analysis explained. “This is a clear reminder L'Oréal's 'star' status is now baked in and any deviation from that status
is now a downside risk.”
Elsewhere, questions about the discretionary nature of its product lines and management ability to navigate an uncertain macro backdrop sour the analysts’ assessment of the stock. As such, Letheren lowered her rating to Sell and cut her price target to €290 from a prior €310.
Read more on the cosmetics company’s recent sales trends .
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L’Oreal cut to Sell as RBC on China concerns