Despite macroeconomic headwinds, consumer disposable income remained high in the United States, increasing to $18.98 trillion in December 2022 from $18.90 trillion in November 2022. Moreover, advance retail sales for the last month rose 3%, far more than the expected 1.9%, suggesting consumers’ incessant spending despite an uptick in inflation.

Moreover, conventionally consumer defense stocks are good hedges against market volatilities owing to stable demand for the goods. Consumer defensive company Unilever PLC (UL), headquartered in London, the United Kingdom, operates through the broad segments of Beauty & Personal Care; Foods & Refreshment; and Home Care.

UL recently announced the appointment of Hein Schumacher as its new Chief Executive Officer, following an extensive, global search process. The move was also cheered by other investors and analysts, who have felt in recent years that UL needed an outsider’s touch.

The company expects 2023 underlying sales growth to be at least in the upper half of its multi-year range of 3% to 5%. Also, with cost inflation remaining high, the underlying operating margin is expected to be around 16% in the first half of 2023.

The stock has gained 8% over the past six months and 6.2% over the past three months to close the last trading session at $51.20, higher than its 50-day and 200-day moving averages of $50.68 and $47.23, respectively.

Here are the factors that could influence UL’s performance in the upcoming months:

Solid Financials

For the fiscal year that ended December 31, 2022, UL’s turnover rose 14.5% year-over-year to €60.07 billion ($6.42 billion), with an underlying sales growth of 9%. Its operating profit increased 23.6% year-over-year to €10.76 billion ($11.50 billion).

UL’s net profit stood at €8.27 billion ($8.84 billion), up 24.9% from the previous year, and its earnings per share increased 28.9% from the year-ago period to €2.99 for the same year.

Attractive Dividend

On February 9, 2023, UL declared a quarterly dividend of €0.4268 per share, payable to the shareholders on March 21, 2023. Its forward annual dividend of $1.83 translates to a 3.57% yield on the current price. Its dividend payments have grown at a CAGR of 2.9% over the past five years.

The company has a four-year average dividend yield of 3.47%. Also, it has paid dividends for 12 consecutive years.

Discounted Valuation

In terms of forward non-GAAP P/E, UL is trading at 18.73x, 3.4% lower than the industry average of 19.49x, while its forward EV/EBIT of 15.09x is 2.5% lower than the industry average of 15.47x.

Robust Profitability

UL’s trailing-12-month gross profit margin of 100% is 217.1% higher than the industry average of 31.53%. Also, the company’s trailing-12-month EBITDA margin and net income margin of 19.06% and 12.72% exceed the respective industry averages of 10.55% and 4.12%.

UL’s trailing-12-month ROCE and ROTA of 42.31% and 9.82% are higher than the respective industry averages of 10.40% and 3.73%.

POWR Ratings Reflect Promising Prospects

UL’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. UL also has a B grade for Value, in sync with its lower-than-industry valuation. Also, it has a B grade for Stability, consistent with its five-year beta of 0.14.

UL is ranked #4 of 58 stocks in the Consumer Goods industry.

Beyond what we’ve stated above, we’ve also rated UL for Growth, Sentiment, Quality, and Momentum. Get all UL ratings here.

View all the top stocks in the Consumer Goods industry here.

Bottom Line

Amid a volatile economic scenario, UL as a consumer defensive stock should benefit, owing to its non-cyclical demand. Moreover, given the company’s promising financial results for the previous fiscal year and attractive dividend payouts, investors might buy the stock without hesitation to ensure a steady passive income.

How Does Unilever PLC (UL) Stack up Against Its Peers?

While UL has an overall B rating in our POWR Ratings system, one might consider looking at its industry peers Ennis, Inc. (EBF), which has an overall A (Strong Buy) rating, Kimberly-Clark de México, S. A. B. de C. V. (KCDMY) and Mannatech, Incorporated (MTEX), which have an overall B (Buy) rating.

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UL shares were unchanged in premarket trading Monday. Year-to-date, UL has gained 1.69%, versus a 6.49% rise in the benchmark S&P 500 index during the same period.

About the Author: Sristi Suman Jayaswal

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...

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