L’Oreal Anti-Aging Products Lift Outlook
The US makes up almost 5% of the global skin care market worth over $90 billion in 2009. We estimate that this is largest and fastest growing segment within the personal beauty and personal care industry and will grow in excess of 5% year-on-year over our forecast horizon. [1]
L’Oreal (PINK:LRLCY) is a leading player in the beauty and skin care market and competes with companies like Revlon (NYSE:REV), Avon (NYSE:AVP), Proctor & Gamble (NYSE:PG) and Estee Lauder (NYSE:EL). Our price estimate of $22.74 for L’Oreal is slightly above the current market price.
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Value of Skin Care to L’Oreal
Much of the growth in the skin care market is due to the relatively new anti-aging skin care segment, which we estimate constitutes close to 40% of the skin care market. We expect anti-aging products to continue to show robust growth in excess of 7.3% year-on-year and so is an important area of focus for L’Oreal.
This niche segment is resilient as growth was steady during the economic downturn 2008-09, which led to declines in disposable income and consumer demand for personal care products as a whole.
Anti-aging products, which initially targeted the baby boomers, are now increasingly targeting a younger demographic of 25 and above. The competition within anti-aging skin care is heating up and almost all players in the beauty and personal care segment have a range of anti-aging products.
The most popular product lines include Avon’s Anew, Estee Lauder’s Idealist and Resilience Perfectionist and Procter & Gamble’s Olay Regenerist and Olay Total Effects among others.
We estimate that skin care accounts for over 25% of L’Oreal’s stock and that L’Oreal’s share of the global skin care market will remain stable at around 13.5% in coming years.
Given the increasing importance of the anti-aging segment within skin care, much of the increase in market share depends on the success of L’Oreal’s RevitaLift, Skin Genesis and Age Perfect products.
If L’Oreal’s anti-aging products miss the mark and market share slipped to 10% by 2017 rather than increase to 13.5% as we forecast, this would reduce our Trefis price estimate by about 7%.
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Notes:- Estimates based on data from Datamonitor. See our forecast driver explanation here. [↩]