Improving business plus undervalued stock could lead to double-digit returns
U.K.-based Unilever PLC (NYSE:UL) had a difficult first half
to 2020 as the coronavirus weighed on its food service and out-of-home
businesses. The second half of the year was a different story as sales growth
returned. The stock is down 7.5% year to date while the S&P 500 has enjoyed
a nearly 6% return.
Shares are also trading below their historical valuation as
well as their estimated intrinsic value. This, combined with an improving
business and a solid dividend yield, make Unilever an intriguing option in the
consumer staples space.
Let's look closer at Unilever to see why I feel the stock is
attractively priced.
Recent earnings results
Unilever reported full-year 2020 results on Feb. 4. For the
year, revenue grew 1.9%. While not terribly impressive, the company reported
0%, -0.3%, 4.4% and 3.5% sales growth for the first-, second-, third- and
fourth-quarters. As you can see, the business performed much better in the
second half of the year when Covid-19 restrictions weren't as severe as the
first half. Earnings per share grew 0.7% to $2.88 for 2020, a decent showing
given the circumstances the company faced.
Due to the pandemic-induced lockdowns, Unilever's in-home
products did exceptionally well.
In Food and Refreshment, sales grew 1.2%. This segment saw
incredible strength in retail foods as consumers were forced to eat more meals
at home. Sales in this area were up 12%. The Knorr brand and dressings were
singled out as top performers. In-home ice cream improved 17% as e-commerce
sales more than doubled. On the other hand, out-of-home ice cream was one of
the rare weaker spots as sales plummeted due to fewer consumers eating out.
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