Analysts Upgrade Unilever

Equity analysts have increased their fair value estimate for consumer staples company Unilever as the company benefits from favourable foreign exchange rates

Erin Lash, CFA 20 April, 2015 | 2:37PM
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The breadth of Unilever's (ULVR) expansive distribution network combined with its solid brand mix – which supports the firm's wide moat – was evident in the firm's first-quarter trading update. After bumping up our fiscal 2015 sales outlook to nearly 8% growth from 1.4% previously to account for the benefit from favourable foreign currencies as well as recalibrating our cost of capital assumptions, we are raising our fair value estimate to £30.61 from £24.93.

We view Unilever as fairly valued, but would look to any retreat in the stock price due to concerns about slowing global consumer spending or competitive pressures as an opportunity to build a position in this wide-moat name.

For the quarter, organic sales rose 2.8%, which was driven by nearly 2% higher prices and a 1% uptick in volume. But unlike last year, when unfavourable foreign exchange movements hampered the top line to the tune of 9%, FX was a pronounced positive, at almost 11%. Emerging markets, which make up nearly 60% of sales, posted sales growth just north of 5% on 4% higher prices and 1% increased volume, and despite the contraction from a year ago, when sales popped about 7%, management highlighted that India and South Africa showed signs of improvement and China is stabilizing.

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Erin Lash, CFA  Erin Lash, CFA, is a senior stock analyst with Morningstar.

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