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Unilever to Boost Hair Care Portfolio with Living Proof Buyout

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Consumer products giant Unilever Plc (UL - Free Report) announced that it will acquire Living Proof Inc., the innovative premium hair care business. Though the terms of the deal were kept under wraps, the acquisition is expected to close in the first quarter 2017, subject to customary regulatory approvals.

Founded in 2005 and co-founded by MIT professor Robert Langer, this Cambridge-based beauty products company brought on actress Jennifer Aniston as the co-owner and hair care spokesperson in 2012. The company holds 20 patents for the chemical technologies used in its shampoos and other hair care products.

Living Proof will now be part of Unilever’s Prestige portfolio, which already includes brands like Murad and REN. Addition of Living Proof to the Prestige brand will lead to creation of a comprehensive portfolio of hair products, enabling customers to get stronger and healthier hair, while addressing a number of problems.

UNILEVER PLC Price and Consensus

 

 

UNILEVER PLC Price and Consensus | UNILEVER PLC Quote

We note that Unilever has been focused on shaping its portfolio to deliver sustainable growth. Further, the company has been relying on deodorants and hair care products to augment revenues this year, as sales of margarine and bread spreads continue to wane. Last year, the company had added personal care brands, including Dermalogica and Kate Somervile.

Notably, the Anglo-Dutch company has been on an acquisition spree over the last few quarters, especially in the home care market.

In September, Unilever acquired Vermont-based Seventh Generation Inc., which is known for its natural and eco-friendly cleaning products, including plant-based detergents and household cleaners. Then Unilever expressed interest in buying Honest Co., a company co-founded by actress Jessica Alba, which sells disposable baby diapers and other baby products, and also has a natural focus.

In August, Unilever announced the acquisition of Stockholm-based Blueair, which will benefit asthma patients as the purifier can remove allergens, thereby making it easier for them to breathe. It will also complement the company’s water purification business. Also, Unilever completed the purchase of Dollar Shave Club for about $1 billion, which was announced in July. Dollar Shave Club is a men's grooming brand, and the acquisition could prove particularly lucrative for Unilever, which does not own a direct-to-consumer men’s shaving product line yet.

However, despite its strong fundamentals, Unilever is struggling with its food business due to lack of innovation and dwindling demand. Saturation of markets in the U.S. – the company’s major revenue source – has been primarily hurting demand. As a result, it has been shedding assets from its portfolio.

Last month, the consumer giant received an "adverse judgement" from the Brazilian Judicial court in relation to an indirect tax case and was ordered to pay judicial deposit of approximately €590 million (£504 million), which will be recognized as a non-current financial asset. Though no impact is expected on the company’s reported free cash flow, it led to a decline in share prices.

Unilever has been delivering weak results throughout the past few quarters due to sluggishness in the emerging markets, which account for about two-thirds of the company’s total revenue. Though the emerging markets offer robust long-term prospects, they are generally volatile.

The company’s attractive Zacks Rank #2 (Buy), VGM score of ‘B’, and low beta of 0.78 instills optimism in the stock. However, shares of Unilever declined 7.9% year to date, significantly underperforming the Zacks categorized Soap and Cleaning Preparations industry’s growth of 0.9%.

Other Stocks to Consider

Other favorably placed stocks in the broader consumer staple sector include Sysco Corp. (SYY - Free Report) , Lancaster Colony Corporation (LANC - Free Report) and Ingredion, Inc. (INGR - Free Report) . All these stocks carry a Zacks Rank #2.You can seethe complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Ingredion has an expected earnings growth rate of 11.0%. Further, it has delivered positive earnings surprises in all of the trailing four quarters, leading to an average earnings surprise of 10.5%. Meanwhile, Lancaster Colony and Sysco have expected earnings growth rates of 3.0% and 8.8%, respectively.

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