Thinking About Unilever PLC (UL)? We Studied It, so You Don't Have To.

Unilever PLC, a household & personal products company, saws its shares slump -0.3% to a price of $50.84 today. They are now trading 7.49% above their average analyst target price of $47.3.

The average analyst rating for the stock is buy. UL underperformed the S&P 500 index by -1.0% during today's afternoon session, but outpaced it by 12.2% over the last year with a return of -4.8%.

Unilever PLC operates as a fast-moving consumer goods company. The company is in the consumer defensive sector. It markets so-called staple goods and services that consumers tend to purchase regardless of their discretionary income. Thus, sales revenue tends to remain relatively unchecked by economic downturns, which in turn can contribute to share price stability. The flipside is that defensive stocks may see comparatively little growth during periods of economic growth.

Unilever PLC's trailing 12 month P/E ratio is 21.4, based on its trailing EPS of $2.38. The company has a forward P/E ratio of 20.8 according to its forward EPS of $2.44 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the consumer defensive sector has an average P/E ratio of 24.21, and the average for the S&P 500 is 15.97.

To understand a company's long term business prospects, we must consider its gross profit margins, which is the ratio of its gross profits to its revenues. A wider gross profit margin indicates that a company may have a competitive advantage, as it is free to keep its product prices high relative to their cost. After looking at its annual reports, we obtained the following information on UL's margins:

Date Reported Revenue ($ MM) Cost of Revenue ($ MM) Gross Margins (%) YoY Growth (%)
2021-12-31 52,444 30,259 42.3 -2.65
2020-12-31 50,724 28,684 43.45 -1.27
2019-12-31 51,980 29,102 44.01 n/a
  • Average gross margin: 43.3 %
  • Average gross margin growth rate: -2.0 %
  • Coefficient of variability (higher numbers indicating more instability): 2.0 %

Unilever PLC's gross margins indicate that its underlying business is viable, and that the stock is potentially worthy for investment -- as opposed to speculative -- purposes.

When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Unilever PLC was $6,632,000,000.00 as of its last annual report. Over the last 4 years, the company's average free cash flow has been $7,084,000,000.00 and they've been growing at an average rate of 2.3%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in UL have received an annualized dividend yield of 3.4% on their capital.

Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Unilever plc's P/B ratio is 6.4 -- in other words, the market value of the company exceeds its book value by a factor of more than 6, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Defensive sector, which stands at 4.09 as of the third quarter of 2022.

Since it has a lower P/E ratio than its sector average, an elevated P/B ratio, and a steady stream of strong cash flows with an upwards trend, Unilever PLC is likely fairly valued at today's prices. The company has poor growth indicators because of an inflated PEG ratio and consistent operating margins with a stable trend. We hope you enjoyed this overview of UL's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.