Is It Still Safe to Buy Unilever?
Jun 17th 2013 9:19PM
Updated Jun 18th 2013 1:00AM
LONDON -- I'm always searching for shares that can help ordinary investors like you make money from the stock market. However, many people are currently worried the market could be overheating.
So right now I'm analyzing some of the most popular companies in the FTSE 100, hoping to establish if they can continue to outperform in today's uncertain economy.
Today, I'm looking at Unilever to determine whether the shares are still safe to buy at 2,636 pence.
So, how's business going?
Over the last week or so, Unilever's shares have been in retreat after the company issued a trading statement, which missed market expectations.
In particular, for the first quarter of this year, Unilever reported that the total volume of its products sold expanded only 4.9%, missing analysts' estimates.
Moreover, it was forced to discount its products heavily in order to compete with rivals and, despite sales volumes rising, revenue expanded just 0.2% to 12.2 billion euros.
However, it wasn't all bad news, as the company reported that within the quarter, emerging market sales had expanded 10.4% and now accounted for 57% of the group's total sales -- up from 55% at the end of last year.
Meanwhile, thanks to Unilever's highly cash generative operations, its net debt declined 16% during the period.
Thanks to the defensive nature of Unilever's business, City analysts expect the firm's earnings to grind steadily higher over the next two years.
City forecasts currently predict earnings of 1.42 pounds per share for this year (11% growth) and 1.56 pounds for 2014.
Unilever is well known for its dependable dividends and it appears it is not going to damage this reputation anytime soon.
City analysts currently have a payout of 88.4 pence per share penciled in for 2013 (12% increase) and 96 pence per share for 2014, for prospective yields of 3.3% and 3.6% respectively.
In addition, Unilever's current 3% yield is larger than that of its peers in the food producers sector, which currently offer an average dividend yield of 2.9%.
Unsurprisingly, due to Unilever's defensive nature, investors are prepared to pay highly for its shares and Unilever currently trades at a premium to its sector peers.
It presently trades at a historic P/E of 18.9, while its peers trade at an average historic P/E of around 11.
Unilever is a very defensive company and has continued to grow over the last few years despite the hostile economic environment. Additionally, the firm currently supports a dividend yield larger than that of its peers and is set to achieve double-digit earnings growth this year.
So, overall, I believe that Unilever still looks safe to buy at 2,636 pence.
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In the meantime, please stay tuned for my next FTSE 100 verdict.
The article Is It Still Safe to Buy Unilever? originally appeared on Fool.com.Rupert Hargreaves does not own any share mentioned in this article. The Motley Fool recommends Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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