Image source: Unilever plc
Unilever (LSE:ULVR), a leading consumer goods company, owns a huge number of well-known names, including Ben & Jerry’s, Vaseline, and Walls. Unilever’s share price has fallen short of some of the market’s biggest drivers, but could the company emerge a winner as economic uncertainty continues?
Unilever’s recent financial reports show a company that is in good health. By the end of 2022, total revenue was an impressive £60 million, a steady increase over the past four years. This demonstrates the ability to grow and expand in a challenging economic environment.
Based on a discounted cash flow calculation, which calculates an approximation of fair price, Unilever is currently trading at 15.7% below its estimated fair value. I also like to consider the price-to-earnings (P/E) ratio. Unilever has a P/E of 13.6 times, notably lower than its sector rivals.
These strong metrics are further supported by the company’s earnings growth of 42% over the past year, a strong indicator of financial health and future growth potential.
Despite a balance sheet that looks pretty healthy, there are still a couple of red flags for me. At £29bn and a debt-to-equity ratio of 105%, it’s clear the company is quite reliant on debt. However, with cash reserves and long-term assets exceeding this, it looks manageable, despite the high interest rate environment we currently find ourselves in.
Slow but safe
Unilever’s share price reflects the company’s consistent, if not spectacular, market performance. Currently priced at £39.49, the company has seen an increase of 0.24% over the past year. However, it is worth noting the 16.85% drop over the past three years, indicating some market volatility and challenges.stocks/gb/household/lse-ulvr/unilever-shares” target=”_blank” rel=”noreferrer noopener”/>.
In terms of risks, Unilever’s earnings are expected to decline by an average of 1.7% annually over the next three years. This, coupled with a shaky dividend history and a high level of debt, suggests potential investors should be cautious and consider these factors.
However, in a time of economic uncertainty, Unilever has been proactive in adapting to market trends and making smart strategic decisions.
Make the right decisions
Unilever has reaffirmed its results forecast for next year. This indicates confidence in the operating strategy and future prospects. This is further reinforced by the decision to sell the Dollar Shave Cluba move that could potentially streamline operations and focus on more profitable segments.stocks/gb/household/lse-ulvr/unilever-shares#:~:text=,from%20Unilever%20PLC%20%28LSE%3AULVR” target=”_blank” rel=”noreferrer noopener”/>.
In an effort to continually improve governance and overall strategic direction, Unilever has announced changes to the composition of its board committees. These changes often reflect a company’s adaptability and willingness to evolve in response to internal and external challenges.stocks/gb/household/lse-ulvr/unilever-shares#:~:text=,Composition%20Effective%20December%201%2C%202023″ target=”_blank” rel=”noreferrer noopener”/>.
I am buying?
Unilever presents a combination of strong financial results, market challenges and strategic initiatives. While the revenue growth and potentially undervalued share price are encouraging, the expected decline in profits and high debt level pose challenges. However, Unilever’s recent strategic decisions, including paying dividends and selling non-core assets, show a company that is actively managing its portfolio and seeking to create value for its shareholders. I’ll be keeping an eye on how these strategies develop and adding Unilever to my watchlist for now.
