Unilever tumbles despite half-year earnings beat: should you buy the pullback?

By: Motiur Rahman
Motiur Rahman
Md Motiur enjoys researching how companies are solving challenges the world will face over the coming decades. In his… read more.
on Jul 22, 2021
  • Unilever Plc shares plunged more than 5% on Thursday after announcing its most recent results.
  • The company announced its half-year results before markets opened, beating expectations on revenue and EPS.
  • Should you buy or sell Unilever stock now?

Unilever Plc (LON:ULVR) reported its fiscal half-year results on Thursday before markets opened. The company posted relatively flat revenue growth of 0.03% to €25.79 ($30.36) billion, but still managed to beat consensus Street expectations by €60 ($70.64) million.

The company reported 1H earnings per share of €1.33 ($1.57), beat analyst expectations of €1.27 ($1.50). 

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The London, UK-based consumer goods company also announced a €0.4268 ($0.50) dividend per share and a share buyback program of up to €3 ($3.53) billion.

Chief Executive Officer Alan Jope said: 

Competitive growth is our priority, and we are confident that we will deliver underlying sales growth in 2021 well within our multi-year framework of 3-5%, despite more challenging comparators in the second half.

The company also warned it would raise toiletries and cleaning products prices amid rising raw material costs. Unilever pointed to rising commodity prices for having impacting negatively on the company’s profitability.

“Cost volatility and the timing of landing price actions create a higher than normal range of likely year-end margin outcomes. We are managing this dynamically and expect to maintain an underlying operating margin for 2021 around flat,” Jope added.

Should you buy Unilever shares in August 2021?

From a valuation perspective, Unilever shares trade at a fair valuation of about 23.42 P/E. However, its forward P/E of 18.58 indicates a slight undervaluation, thus making the stock compelling to value investors.

Analysts expect earnings to grow by about 5% next year and at an average of 6.90% over the next five years. However, the EPS could decline slightly due to rising commodity costs this year, with analysts predicting a 0.90% decrease.

Therefore, growth investors would be better off finding alternatives in the industry. Analysts expect Unilever’s close peer, the Ohio-based Procter & Gamble Co. (NYSE:PG), to post earnings growth of 246% this year.

Source – TradingView

Technical overview: Unilever stock price predictions for August 2021

Technically, the Unilever stock price appears to have made a bearish breakout from a descending channel formation in the daily chart. The stock plunged to oversold conditions after creating a downward price gap on Thursday.

Investors can target short-term rebounds at approximately $57.87 or higher at $60.08. The support levels are $53.90 and $52.02.

Bottom line: why buy Unilever stock price rebound now?

In summary, Unilever shares seem slightly undervalued when compared to PG’s forward P/E of 23.47. However, the growth prospects for the year lag PGs, meaning the rebound may not last long.

Therefore, investors can buy Unilever shares to sell after a short time. Long-term investors can wait for the shares to retest current support levels before buying.

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