Unilever share price forecast: is Unilever a good stock to buy?

Unilever reports accelerating cost inflation in third quarter results, but what does this mean for the Unilever share price forecast?

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How much would you be willing to pay for Dove deodorant, a jar of Marmite or a Cornetto ice cream before switching to a cheaper brand? 

With input costs surging and the pandemic continuing to cause major global supply-chain issues, the consumer goods giant Unilever, which sells all those brands and many more, has raised its prices in order to retain operating margin.

With cost inflation reaching 4% – according to the company's third-quarter results report – and no sign of inflationary pressures letting up anytime soon, the strength of the brand and the loyalty of its customers will no doubt be tested over the coming period.

But what does this mean for the UL stock forecast? Let’s take at the results at Unilever’s third-quarter results.

Third-quarter results

Underlying sales growth stood at 2.5% year-on-year, according to the results published on Thursday, while year-to-date underlying sales growth stood at 4.4%. Turnover, year-on-year, stood at €13.5bn ($15.7bn), a 4% increase from the third quarter of 2020.

While overall volume of sales fell by 1.5%, a dramatic 4.1% increase in prices resulted in 2.5 % turnover growth. Recovered demand across China, India and the US drove growth, as Covid-19 lockdown restrictions have somewhat relaxed. Offline shopping, ice-cream sales and eating out of the house increased as curbs relaxed.

Prestige beauty-range and food solutions businesses drove 2% growth in the North America market, for example, as a result of a 2.9% increase in price, though volume fell 0.9%.

Across Asia, sales grew by 2.3%, with a 4.2% price increase balanced by a volume decline of 1.9%, largely due to poor performance in Southeast Asia.

Again, in Europe volume declined by 1.8%, while prices rose by 2.1% resulting in 0.3% underlying sales growth.

Unilever’s response

In response to the results, Alan Jope, chief executive officer for Unilever, said “The combination of our strategic choices and focus on operational excellence continue to drive competitive growth. Underlying sales growth is now at 4.4% for the year-to-date and we are confident that we will be well within our multi- year framework of 3%–5% for the full year.”

During its quarterly conference call, Unilever’s chief financial officer, Graeme Pitkethly, commented how “outlook for the full year remains unchanged”,  forecasting Unilever’s full operating margin will be “flat”.

Looking forward, he also forecasted more pricing pressures, highlighting that “pricing stepped up as we took action in response to the high levels of inflation we have seen. This is important, given that inflation will continue to be a key theme for the remainder of this and next year.”

Pitkethly added: “It is a once-in-two-decade scenario that we are seeing, and we haven’t reached peak inflation yet.”

Rising costs

From surging prices of raw materials such as edible oils, packaging and energy to higher freight costs and labour shortages as a result of the pandemic, inflationary pressures have hit many companies across the world.

Nestlé, for example, in recent results reported 2.1% increase in prices for the third quarter, while Procter & Gamble similarly forecasted price hikes.

Unilever, attempting to cut costs and streamline business model before passing on price costs to customers, reported €2bn ($2.3bn, £1.7bn) euros of efficiency savings throughout this year and forecasted another €2bn of savings in the coming year to further attempt to offset price rises.

Jope reiterated during the conference call that while consumer price hikes are the last resort, the price hikes that have been put in place have been done without compromising the long-term integrity of the food giant: “We take an approach on pricing where it’s the last thing we try to do, not the first thing.” 

Despite price increases in India, Brazil and North America, the report results indicated that sales volume appears unaffected in those markets.

How elastic can prices be, however, before the sales volume begins to suffer? And what does this mean for the Unilever stock price prediction? 

Market response

The Unilever stock price has suffered a volatile year so far.

Unilever stock crashed in March 2020 to reach a loss of £38.54 ($53.22). Towards the end of the year, the stock began to pick up, reaching highs of £48.66 ($67.19) in early October.

In February 2021, however, the company’s stock fell again to a low of £37.33 ($51.54). While the stock has seen some upward trends throughout the year, it has wholly failed to recover to pre-pandemic valuation levels. Since the beginning of the year, the Unilever share price has lost more than 13%, while over the past year, it has lost nearly 18% of its valuation.

Despite this dour market response over the long term, the Unilever share price rallied right after the third-quarter results announcement to £39.46 ($54.48), after opening at £38.70 ($53.43). Throughout the day, however, the price has rebounded back down to £38.64 ($53.35).

Expert opinions

Deborah Aitken, senior industry analyst for consumer products at Bloomberg Intelligence, in response to the results, predicted “margin weakness into 2022” as a result of the “1.5% volume hit due to raised prices and the fragility of category positioning.”

She added that “volume erosion is across all three divisions, an indicator of market-share losses, which won't easily be recouped.” Despite this, she told Currency.com that “most of Unilever's wide-ranging consumer categories and top-tier brands are well-positioned for a recovery from the pandemic,” adding that “cost-cutting should help to offset escalating commodity inflation, tempering margin pressure.”

Dan Lane, Freetrade’s senior analyst, however, was less optimistic, suggesting that “the reality is that Covid is going to leave a very tricky path ahead for Unilever… The prices of raw materials, packaging and distribution are soaring, and there’s only so much of that extra cost it can add to a tub of Marmite before consumers skip the spread altogether.”

Jefferies’ senior equity research analyst, foods and high-performance computing (HPC) Martin Deboo, in response to the results, said: “The underlying challenge remains the one of accelerating volume growth.”

Final thoughts

With inflationary pressures set to continue into next year as potentially price hikes will continue to rise, only time will tell how this will impact the sales volume. Furthermore, with Covid-19 still far from over, and new variants emerging globally all the time, it is unclear what continued impacts this may have on input and distribution costs in the future.

While these issues will plague all consumer-goods companies, Unilever’s capacity to navigate this adversity will be key to its stock-price performance. If price rises affect sales volume minimally, this will impact the Unilever share-price forecast favourably.

While Unilever has established itself as a “sticky” brand, only time will tell how high the price can go before other, less-expensive brands begin to have a competitive edge.

 While analysts take differing views on Unilever share price forecast, its current valuation is historically low.  

Out of 18 analysts polled, the most optimistic of the bunch estimate a 12-month price target of £52.13, an increase of 36.5% compared current price. The low end for Unilever stock comes in at £33.76, a decrease of 11.6%. The median estimate represents a 20.9% increase from current price to £46.17.

From a consensus recommendation by the FT, seven experts have put a buy recommendation, five analysts believe Unilever will outperform the market, four advise a hold, five believe it will underperform the market and 1 analyst has put a sell rating.

While it is difficult to make concrete price forecasts for 2022 – let alone 2025 – Unilever has certainly demonstrated robustness in the face of ongoing challenges. The company’s ability to navigatea way forward through these uncertainties and retain its loyal customer base alongside a growing emerging markets customer base will definitely impact how well it performs over the next few years. 

Only time will tell how loyal customers are to their favourite brands, and whether they will continue buying them regardless of potential price hikes. 

Investing is a personal matter. If, after doing careful research, you perceive Unilever stock to be undervalued, and you are looking for a solid long-term investment, then it might be a good bet. 

However, with the ongoing disruptions caused by the pandemic, combined with continuing inflationary issues, it is important to stay updated on macroeconomic trends. It is essential that you do your own research, bearing in mind that prices can go down as well as up. Also, you should never invest more money than you can afford to lose.

You can buy Unilever shares today in tokenised assets at Currency.com. Tokenised assets are crypto derivatives whose value is linked to the value of a particular asset.

Currency.com offers the opportunity to buy with leverage, with easily defined stop-losses and limits to close positions at a specified price. But while leverage will allow you to make bigger profits if a stock goes up, it will also magnify your losses if the price goes down.

Unilever PLC ADR - USD
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