On Thursday, BofA Securities significantly adjusted its stance on Unilever plc (LON:ULVR:LN) (NYSE: UL) stock, raising the rating from Underperform to Buy and increasing the price target from GBP 38.00 to GBP 56.00. This change reflects a more optimistic outlook on the company's future performance and potential growth.
The upgrade is based on several key factors. BofA Securities anticipates Unilever to achieve a compound annual growth rate (CAGR) of 4.6% from 2024 to 2027.
This expectation is supported by the company's stronger underlying growth due to better exposure in its sub-categories following portfolio adjustments, as well as anticipated market share gains.
These gains are attributed to Unilever's management initiatives that focus on power brands, innovation, and improved returns on investments. As a result, the firm expects an acceleration in earnings per share (EPS) CAGR to 10% for the period from 2023 to 2026, up from just 1.5% between 2020 and 2023.
Another contributing factor to the positive outlook is the planned separation of Unilever's Ice Cream division. The analyst believes that this move will be beneficial for the company's growth, management focus, and overall valuation.
Additionally, while recognizing the challenges that Unilever may face in 2024, such as increased local competition in emerging markets and more private label competition in developed markets amid a weakening consumer environment, BofA Securities suggests that these issues are already well accounted for. The firm's projections are in line with consensus on short-term growth, but they anticipate higher margins, being 30 basis points above the consensus EBIT margin.
In conclusion, the updated estimates and price objective reflect a sum-of-the-parts valuation, suggesting a new price objective of GBP 5600 (approximately EUR 65/US $72), which implies a roughly 19% upside potential, compared to the previous target of GBP 3800 (approximately EUR 44/US $47).
In other recent news, Trian Fund Management, previously the fifth-largest shareholder in Unilever, sold a portion of its stake in the company, reducing its holdings to approximately 32.6 million shares. The move was explained as being related to "portfolio management purposes."
Jefferies has adjusted its price target for Unilever, raising it slightly while maintaining an underperform rating on the company's shares. Despite a sales shortfall in the second quarter, the firm acknowledges the positive impact of new management on the company's performance.
Argus has raised its price target for Unilever to $70, retaining its buy rating on the stock. This adjustment reflects confidence in the company's ability to grow its earnings and deliver value to shareholders.
Unilever has reported a substantial increase in its financial performance for the first half of the year, with underlying sales growth of 4.1% and an expansion in gross margin to 45.7%. The company's underlying operating profit rose by 17.1% to €6.1 billion, largely due to a 4% increase in volumes from its Power Brands.
Unilever is shifting its focus towards India, capitalizing on the country's robust economic expansion. The strategic pivot is seen as a response to a slower recovery in China and is supported by the promising market potential in India.
These recent developments reflect Unilever's strategic response to current market conditions and its commitment to long-term growth and shareholder value.
InvestingPro Insights
Recent data from InvestingPro aligns with BofA Securities' optimistic stance on Unilever. The company's market capitalization stands at a robust $154.21 billion, indicating its significant presence in the market. Investors may also find comfort in Unilever's history of maintaining dividend payments for 33 consecutive years, reflecting its commitment to shareholder returns, which is an important consideration given the current economic climate. Additionally, with a Price / Book multiple of 6.81 as of the last twelve months leading up to Q2 2024, the stock is trading at a premium, possibly due to its status as a prominent player in the Personal Care Products industry.
InvestingPro Tips highlight Unilever's low price volatility, suggesting that the stock may offer a stable investment opportunity. Moreover, analysts predict profitability for the current year, and the company has been profitable over the last twelve months. For readers seeking more in-depth analysis, InvestingPro offers additional tips on Unilever, which can be accessed at InvestingPro Unilever.
With a forward-looking P/E Ratio of 19.13, investors may be pricing in expected earnings growth, which is a positive sign alongside the company's revenue growth of 2.26% in the most recent quarter. These metrics, coupled with the strategic moves such as the planned separation of the Ice Cream division, could provide a clearer picture of the company's value proposition and growth trajectory for prospective investors.
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