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Bull of the Day: Unilever (UL)

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After many years of underperformance, emerging markets are shining in 2017. We can see signs of improving economic growth in many parts of the developing world. This rebound has benefitted multinational giants that derive a significant portion of their sales from emerging markets.

About the Company

Headquartered in London, UK, Unilever PLC (UL - Free Report) is a multinational consumer goods company. They employ ~169,000 people.

The company has a huge portfolio of more than 400 well-known brands including Dove, Lipton, Knorr and Ben & Jerry’s. Emerging markets account for about 60% of their sales. Seven out of every ten households around the world contain at least one Unilever product.

Better-than-expected Results

The company reported better than expected results, thanks mainly to strong growth in emerging markets, except Brazil.

Turnover increased 6.1% with a positive currency impact of 2.4%. Underlying sales growth was 2.9% with price up 3.0% but volume down 0.1%. Weaker than expected growth in North America and Europe was mainly responsible for decline in volume.

The company saw strong pricing power in emerging markets, where sales growth was 6.1%--with price up 5.3% and volume up 0.8%. Price growth was particular impressive in Asia.

“The first quarter shows growth once more ahead of our markets. This reflects our continued investment in both innovations and brand support, and reconfirms the strength of our long term sustainable compounding growth model,” said the CEO.

The management said they are on track to achieve 3-5% sales growth and at least 80 bps operating margin growth in 2017.

Rising Estimates

Zacks Consensus Estimates for the current and next year have increased to $2.44 and $2.78 respectively, from $2.26 and $2.44, before the results.

Returning Capital to Shareholders

The company has been returning a lot of cash to shareholders. The dividend yield is 2.65% as of now. They raised their dividend by 12% earlier this month.

Kraft Heinz Bid

Earlier this year, Unilever spurned a $143 billion unsolicited takeover offer from Kraft Heinz. Per Unilever, the deal did not make sense due to difference in their business models. Their spokesman said “it was best to step away early so both companies can focus on their own independent plans to generate value.”

The Bottom Line

For the past many years, sluggish growth and weak currencies in emerging markets posed challenges to multinational companies. But the situation has changed this year. Growth has rebounded strongly and domestic currencies in many developing countries, particularly in India, Brazil, Indonesia and South Africa, have strengthened against the dollar.

UL is a Zacks Rank#1 (Strong Buy) stock with a VGM Score of “A”. Additionally, a Zacks Industry rank of 14 out of 265 (top 5%) and a dividend yield of 2.65% make the stock worth a look.

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