On Tuesday, Jefferies made a slight adjustment to its price target for Unilever (LON:ULVR) plc (UNVR:LN) (NYSE: UL), increasing it from GBP40.00 to GBP41.00, while maintaining the Underperform rating on the company's shares. This decision comes despite the firm acknowledging the positive impact of new management on the company's performance.
Unilever's shares have seen a notable year-to-date increase of 26%, outperforming the SXXP's 4% rise. The analyst at Jefferies has recognized that they underestimated the swift and significant changes brought about by the new leadership, which has led to a marked improvement in gross and operating margins in the first half of 2024, as well as an upgraded forecast for the full year.
However, a sales shortfall in the second quarter indicated that cost deflation or savings were more substantial than anticipated. While the free cash flow equivalent operating margin saw a modest year-over-year increase of 20 basis points in the first half of 2024, compared to a 250 basis point rise in the operating margin, Jefferies has decided to raise the price target by only 2%.
The analyst's commentary reflects a cautious stance, suggesting that despite the improvements and the price target increase, the firm's valuation of Unilever remains conservative. The analyst stated, "ULVR shares YTD +26% (v SXXP+4%) credits new management are making notable & rapid difference. We're the wrong side of this perception shift, including a marked rebound in gross/op margin exhibited 1H24, & associated guidance uplift for FY24. The 2Q sales miss suggests cost deflation and/or savings were therefore more pronounced than expected. But, with FCF equivalent op margin +20bp YoY 1H24 (v op margin +250bp) our PT increases just 2%. That leaves as at U/P."
In other recent news, consumer giants such as PepsiCo (NASDAQ:PEP) and Unilever are shifting their 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, expected to be fueled by increased government spending and a rebound in private consumption. This surge is projected to elevate the market share for leading multinationals including Coca-Cola (NYSE:KO), P&G, PepsiCo, Unilever, and Reckitt to 20.53% in 2023, up from 19.27% in 2022.
Argus recently raised the price target for Unilever to $70, maintaining its Buy rating on the stock. This adjustment reflects the confidence in the company's ability to grow its earnings and deliver value to shareholders in the coming years. Unilever's management also announced plans to separate its Ice Cream business as part of the company's Growth Action Plan, aiming to enhance operational efficiency and drive growth.
Unilever reported a significant 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. Despite a challenging quarter for the Ice Cream unit, Unilever announced plans to separate this business and focus on productivity enhancements.
Despite the Ice Cream unit's disappointing performance, the company saw positive volume growth in four out of five business groups in Q2, driven by volume leverage, positive mix, and procurement initiatives. Unilever also disclosed a €800 million savings plan, with only 5-10% implemented so far.
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