The Unleashing of Unilever Stock: A Rollercoaster Ride of Profitability

Unilever’s Recent Stock Surge

Unilever stock (NYSE: UL) has skyrocketed by 32% since January 2022, peaking from $49 to $64, outperforming the S&P 500’s 18% rise. The surge is primarily fueled by a notable 12% increase in the stock’s P/E ratio from 22x to 24.5x, coupled with a 15% growth in net income from $5.8 billion to $6.6 billion. This dramatic profit boost stems from soaring sales and expanding margins, making investors favor UL stock in light of its newfound profitability.

Historical Performance and Future Outlook

Despite recent success, UL stock faced a downward trend with negative returns over the past three years. However, 2024 has seen a drastic turnaround with a 36% YTD gain. Contrarily, the Trefis High Quality (HQ) Portfolio, comprising 30 stocks, exhibits more stability and has outperformed the S&P 500 consistently.

Looking ahead, amidst economic uncertainties and fluctuating consumer sentiment, the question looms – will Unilever buck the trend seen in 2021 and 2023, potentially underperforming the S&P, or will it continue its upward trajectory? Analysts estimate Unilever’s valuation at $62 per share, close to its current market value of $64, projecting a forward expected earnings per share of $2.90 in 2024, at a slightly elevated P/E ratio compared to its historical average.

Revenue Growth and Profitability

Unilever operates across three segments – Personal Care, Foods & Refreshments, and Home Care, driving 44%, 35%, and 21% of total sales in 2023, respectively. Recent sales upswings are a result of robust pricing strategies and volume improvements, with revenues hitting $33.6 billion in H1 of 2024, showing a 4.1% increase driven by both volume and pricing.

Over the years, Unilever’s sales surged 7%, climbing from $59.8 billion in 2021 to $63.9 billion in 2023, well-supported by enhanced price realization. Concurrently, the adjusted net margin has also risen, standing at 10.4% in 2023, signaling a positive development in profitability. The company’s diligent cost management and volume growth strategies foreshadow continued earning escalations.

Future Prospects and Investor Advice

Unilever is anticipated to sustain a low single-digit annual top-line growth alongside mid to high-single-digit earnings expansions in the upcoming years. While investors have responded by boosting the stock’s valuation, caution is advised. The current positives in profitability and volume upticks seem to be already factored into UL stock’s price, implying that waiting for a potential market dip may be a more strategic move.

Comparative Analysis

In a comparative context, UL stock’s performance can be juxtaposed with other industry peers through Peer Comparisons. Notably, as of September 2024, UL’s returns indicate a -1% for the month, a 36% YTD growth, and a remarkable 106% cumulative total return from 2017 to 2024.

[1] Returns as of 9/19/2024
[2] Cumulative total returns since the end of 2016