Right now I’m looking at some of the most popular companies in the FTSE 100 to try and establish whether or not they have the potential to return to historic highs.
Today I’m looking at Unilever (LSE: ULVR) (NYSE: UL.US) to ascertain if its share price can return to 2,845p.
Initial catalyst
Of course, before we can establish whether or not Unilever can return to its all-time high of 2,845p per share, we need to figure out what caused it to reach this level in the first place. Â
It would appear that Unilever’s gains were driven by a rally in the wider consumer goods sector as investors sought out rock-solid defensive stocks, amid the global economic uncertainty. In addition, this peak of 2,845p was the end of a great run for Unilever, which saw its share price by an impressive 38% in the space of the year preceding this high. Â
Nevertheless, Unilever has since fallen back to earth after a number of downbeat trading update. Still, the recent retreat now makes Unilever’s shares look more attractive on a valuation basis, as at a price of 2,845, or historic P/E of 20, Unilever was starting to look expensive.
But can Unilever return to its former glory?
Nevertheless, I feel the Unilever can return to its all-time high share price of 2,845p in the long term.
You see, Unilever has been one of the great success stories of the FTSE 100 during the past ten years as, due to the company’s defensive nature, earnings have continued to grind higher year after year.
For example, back during the year 2000, Unilever reported earnings per share of only 13p. However, the company reported earnings per share of £1.34 for full-year 2012, that’s growth of 930% in the space of 13 years.
What’s more, Unilever has achieved this growth while turnover has only expanded a tiny 8%. This is impressive because Unilever has been improving its profit margins by selling higher margins goods. As a result, the company’s operating profit margins has doubled from the 7% reported during 2000, to 14% reported for 2012.
All in all, this means Unilever can grow profits without having to grow sales, as when company’s put sales over profits prices wars can occur and shareholders loose out. In addition, a wide profit margin means that Unilever is cash generative, giving the company plenty of cash for special dividends and further growth.
Foolish summary
Overall, Unilever is a great growth story and the company’s cash generative, as well as defensive nature, implies that the company will continue to grow while its peers struggle. Â
So all in all, I feel that Unilever can return to 2,845p.Â