Steady growth in earnings and dividends has been the story for many years at Unilever (LSE: ULVR) (NYSE: UL.US), the owner of the iconic Dove, Hellmann’s, Lipton and Sunlight brands, amongst hundreds of others worldwide.
Earnings growth looks set to slip for the year to December 2014 with a 2% fall to 128p per share on the cards, but a lot of that will be due to the strength of Sterling over the past 12 months as Unilever’s international revenues are largely tied to the US dollar.
Return to growth
But right now, analysts are forecasting a return to EPS growth for 2015, with an 8% rise to 138p penciled in. And the company’s third-quarter trading statement released in October suggested that underlying growth is still there.
Underlying sales figures showed a rise of 3.2% overall, with emerging markets (in many of which Unilever has a leading presence) up 6.2%.
Reported turnover actually fell 4.3% to €36.3 billion, but there was a negative impact of 6.6% there from unfavourable currency movements over the nine-month period.
Tough conditions
Chief executive Paul Polman did highlight ongoing tough economic conditions, with growth slipping a little in China due to that country’s long-predicted slowdown. But things in North America are apparently getting better, and Mr Polman told us that the board is confident that Unilever will “achieve another year of profitable volume growth ahead of our markets, steady and sustainable core operating margin improvement and strong cash flow“.
Is it worth buying Unilever at current share price levels of around 2,630p?
I know shares in reliable companies like this can justifiably command valuations ahead of market averages, but a forward P/E of over 20 for Unilever seems a little high to me, especially as 2015’s forecast growth would take that down only as far as 19. For that kind of valuation I’d really want to see better dividend yields than Unilever’s, and right now we’re looking at only around 3.5%.
Too expensive now?
Brokers are split in their recommendations, with a slight weighting to the Sell side, so maybe the shares are a little high right now. Then again, I’ve felt Unilever was a bit too expensive for a few years now — and the price has beaten the FTSE 100 over the past 12 months and is up nearly 50% over five years.