The U.S. 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. []
L’Oreal is a leading player in the beauty and skin care market and competes with companies like Revlon, Avon, Proctor & Gamble and Estee Lauder. Our price estimate of $22.74 for L’Oreal is slightly above the current market price.
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%.
Please see our full company review here.
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