Inditex has revalidated its historical highs on many occasions so far this year. The last time it did so was at the end of October, when it reached 55 euros, on a day in which it was able to dodge the bullet from LVMH, which was severely punished after its accounts were revealed. If it reaches that peak price again, from which it is currently 6.7% away, and if L’Oréal shares continue without encouragement, Inditex would regain fifth position as the largest firm in the Eurozone. A position that he had not held since 2017.
The French cosmetics firm is going through low hours on the stock market, with its price at its lowest in 2022 and a drop of almost 22% for the year. This correction and the good performance of the Zara matrix leave the smallest difference between both capitalizations since 2017, when Inditex surpassed L’Oréal in market value, although it only did so on specific days. The current difference between both companies is around 12,000 million euros in favor of the French company, which currently has the same capitalization that Inditex reached at its peak.
In the classification of the largest firms in the EuroStoxx 50, which groups together the most representative companies in the euro zone, LVMH has first place, with a market value of 289 billion euros, despite the corrections it suffers on the stock market. in recent weeks. Technology companies SAP and ASML occupy the second and third positions by capitalization. Two other French women in the segment premium are next on this list, and Hermès and L’Oréal close the top five by market value currently.
That Inditex made it among the five companies in the EuroStoxx does not sound crazy if you look at the company’s history in recent months, where it has not stopped expanding its backpack of milestones. So much so that experts already see the Arteixo firm with an ebit margin (which does not take into account interest or taxes) of 20% by 2026, which would be on par with heavy weights like LVMH.
Although it would be enough for the textile company to recover the 55 euros to reach the 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 target price given by the consensus of Bloomberg It is 52.22 euros.
Bankinter, which is one of the firms that recommends taking positions in Inditex securities, explains in one of its reports that, despite the slowdown expected in the coming quarters for the textile [por tipos de cambio]”good cost control, along with the ability to maintain prices, defend margins at all-time highs and consistent high-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 together with local supply allows rapid adaptation to customer trends and demands. The integrated model of physical and online sales offers income and cost synergies, which contributes to this consistency of growth and improved margins,” they add from Bankinter.
The prospects for L’Oréal, which is the textile company’s most direct competitor in this capitalization ranking, are not so optimistic for the coming months. In fact, only in the last month, Sadif Investment and DZ Banks worsened the recommendation. Like Inditex, it offers a hold tip, according to the algorithm used by this medium with FactSet.
JP Morgan considered after L’Orèal’s third quarter results presentation that “the market values greater growth than 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, new growth was seen. signs of slowdown in the US (…). Therefore, we reduce our forecasts and now only foresee a growth of 3.5% in comparable terms for the year 2025,” they complete.
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 cosmetics retail sales in China could slow in November-December from October’s 40% rise, as discounts wane following the end of the Singles’ Day sale, slowing new purchases. In order to cushion a possible slowdown in demand in the next five weeks, cosmetics retailers in China could launch new products and related marketing campaigns, particularly during the Christmas and New Year holidays. “This could boost purchasing into the fourth quarter, even if the surge in consumer spending stemming from Beijing’s latest stimulus measures lags confidence in the country’s economic prospects.”
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% in its price since January 1, its capitalization has experienced a powerful rise in the last four years. Specifically, since January 1, 2020 (the year in which the coronavirus health crisis broke out), its market value has increased by almost 38%, since at that time it was around 209 billion euros.
The performance of Hermès (fourth in the ranking) is similar to that of the company chaired by Arnault, although its performance on the stock market is better than that of LVMH in the year, with a rise of 4%. The growth in its market value has been even more exponential, with a rise of 190% since January 2020, when luxury brands became a refuge for investors.
Thus, although the last few months have not been entirely favorable for firms in this sector due to, among others, the weakness of the Chinese consumer, the prospects for 2025 are better. “The capacity of manufacturers of luxury goods to raise 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, such as Burberry, are planning lower price readjustments,” they say from BloombergIntelligence.
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