Inditex has revalidated its all-time highs several times so far this year. The last time was at the end of October, when it reached 55 euros, a day when he managed to dodge the bullet from LVMH, severely sanctioned after the revelation of his accounts. If it reaches this price peak again, of which it is currently at 6.7%, and if L’Oréal shares continue without encouragement, Inditex would return to fifth place as the largest company in the euro zone. A position he has not held since 2017.
The French cosmetics firm is experiencing low times on the stock market, with its price at its lowest in 2022 and a drop of almost 22% over the year. This correction and the good performance of the Zara matrix leave the smallest difference between the two capitalizations since 2017, when Inditex overtook L’Oréal in market value, even though it only did so on specific days. The current difference between the two companies is around 12 billion euros in favor of the French company, which currently has the same capitalization that Inditex reached at its peak.
In the ranking of the largest companies in the EuroStoxx 50, which brings together the most representative companies in the euro zone, LVMH occupies first place, with a market value of 289 billion euros, despite the stock market corrections it is undergoing. in recent years. weeks. Technology companies SAP and ASML occupy the second and third positions by capitalization. Two other French women in the segment prime are next on this list, and Hermès and L’Oréal close the high five by market value currently.
That Inditex is among the five EuroStoxx companies is not crazy if we look at the company’s history over the last few months, where it has continued to expand its backpack of milestones. So much so that experts already see the Arteixo company with an Ebit margin (which does not take into account interest or taxes) of 20% by 2026, which would be comparable to heavy goods vehicles like LVMH.
Even if it would be enough for the textile company to recover the 55 euros to reach the stock market value of L’Oréal, There are already different analysis houses that see it above 60 euros. These are Redburn Atlantic, Goldman Sachs, Bernstein and DZ Bank. The average price target given by the consensus of Bloomberg It’s 52.22 euros.
Bankinter, which is one of the companies that recommend taking positions in Inditex securities, explains in one of its reports that, despite the slowdown expected in the coming quarters in the textile sector [por tipos de cambio]“good cost control, as well as the ability to maintain pricing, defend margins at unprecedented levels and consistent single-digit sales growth.”
“With a presence in 214 markets and a low market share in a highly fragmented sector, the potential for organic growth is high. The flexibility of the business model as well as local sourcing allow rapid adaptation to trends and customer demands. The integrated physical supply model and online sales offer revenue and cost synergies, which contribute to this consistency of growth and improved margins,” they add from Bankinter.
The outlook for L’Oréal, which is the textile company’s most direct competitor in this capitalization ranking, is not as optimistic for the coming months. In fact, just last month, Sadif Investment and DZ Banks worsened their recommendation. Like Inditex, it offers a holding advice, according to the algorithm used by this media with FactSet.
JP Morgan estimated after the presentation of L’Orèal’s third quarter results that “the market values growth higher than what seems likely”. “L’Oréal’s third-quarter revenue was 2.7% below consensus, with growth of 3.4% versus 6.2% consensus. While other markets remain strong, a new growth has been observed. signs of slowdown in the United States (… Therefore, we are reducing our forecasts and now only forecast growth of 3.5% in comparable terms for the year 2025”, complete. -they.
However, since Bloomberg Intelligence they believe that the Sales in the cosmetics sector could grow in the fourth quarter thanks to Chinese support. “He Year-on-year growth in China’s cosmetics retail sales may slow in November-December from the 40% rise recorded in October, as discounts ease after the end of China’s Day sales. singles, slowing down new purchases. To cushion a possible slowdown in demand over the next five weeks, cosmetics retailers in China may launch new products and associated marketing campaigns, particularly during the Christmas and New Year holidays. “This could boost sales. purchases in the fourth quarter, although the rise in consumer spending resulting from Beijing’s latest stimulus measures falls short of confidence in the country’s economic outlook.
Luxury, at the forefront
As mentioned, three of the five largest companies in EuroStoxx belong to the premium segment. In the case of LVMH, even with losses of almost 21% of its price since January 1, its capitalization has experienced a sharp increase over the last four years. Concretely, since January 1, 2020 (the year the coronavirus health crisis broke out), its market value has increased by almost 38%, since it was then around 209 billion euros.
The performance of Hermès (fourth in the ranking) is similar to that of the company chaired by Arnault, even if its performance on the stock market is better than that of LVMH over the year, with an increase of 4%. The growth in its market value has been even more exponential, rising 190% since January 2020, when luxury brands became a haven for investors.
So, even if the last few months have not been entirely favorable to companies in this sector due, among other things, to the weakness of the Chinese consumer, the outlook for 2025 is better. “The capacity of manufacturers to luxury products to increase prices in order to maintain margins will be even higher in 2025, with high-end luxury brands such as Hermes and Brunello Cucinelli using the formula to exceed single-digit sector growth in 2024 and cover single-digit cost inflation. Meanwhile, brands that are renewing themselves, like Burberry, are planning downward price adjustments,” they say. Bloomberg Intelligence.
