Unilever (LSE: ULVR) (NYSE: UL.US) shares have risen by 142% over the last 10years, but the consumer goods firms share price performance has cooled recently, and Unilevers share price is down by 13% from the all-time high of 2,862p we saw in May 2013.
Does this decline make Unilever a buy, or are the firms shares likely to fall further before recovering?
Ive taken a closer look to find out more.
Pricey P/E
Lets start with the basics: how is Unilever valued against its past earnings, and the markets expectations of future earnings?
|
P/E ratio |
Current value |
|
P/E using 5-year average adjusted earnings per share |
21.4 |
|
2-year average forecast P/E |
18.2 |
Source: Company reports, consensus forecasts
Unilever shares havent been cheap for a long time, and they still arent.
The firms underlying growth and free cash flow compensates to this for some extent: Unilevers dividend has been consistently covered by free cash flow in recent years (unlike most UK supermarkets, for example) and the firms 3.6% prospective yield in line with the FTSE 100 average.
However, Unilevers sales fell last year, and profits are expected to fall this year. Is the Anglo-Dutch firms premium price tag still justified?
A closer look
Unilevers first-half results were encouraging, with emerging market sales up 6.6% and the firms core operation margin stable at a very healthy 14%, despite turnover falling by 5.5% due to currency effects.
However, a year is a short time for a large firm like Unilever, and in my view its more important to look at the medium-term trends before deciding whether to buy or sell.
Ive taken a look at some of the firms key fundamentals over the last five years:
|
Metric |
5-year compound average growth rate |
|
Sales |
+4.6% |
|
Adjusted earnings per share |
+2.6% |
|
Dividend |
+6.1% |
|
Book value |
+3.3% |
|
Net debt |
-2.8% |
Source: Company reports
Its a pretty well-rounded picture, in my view: shareholders have been well rewarded by a rising dividend, while the firms net debt has actually fallen by an average of 2.8% per year.
I dont see anything to be concerned about here. Looking ahead, City analysts expect more of the same: current forecasts suggest both earnings per share and the dividend will rise by around 6% in 2014 and 2015.
Is Unilever a buy?
As a long-term Unilever shareholder, Id be happy to top up my holding at todays prices, but I do think that the companys shares are a little expensive, even given their above-average growth prospects.
Unilevers share price has fallen by 5% over the last three months its possible that this fall might continue, providing an attractive buying opportunity later this year or early next year.
However, I can tell you that the Motley Fool’s expert analysts are rating Unilever as a top buy today.
The team behind the Motley Fool’s market-beating Champion Shares PRO service recently chose Unilever for “The Motley Fool’s 5 Shares To Retire On“.
I can’t reveal the names of the other four companies here, but I can tell you that they all offer a proven track record of strong dividend and earnings growth over a long period.
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Roland Headowns shares in Unilever. The Motley Fool UK owns shares of Unilever. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
