Unilever’s Strategic Challenges and Limited Growth Prospects Lead to Sell Rating

Analyst David Hayes from Jefferies maintained a Sell rating on Unilever and decreased the price target to p4,000.00 from p4,500.00.

David Hayes has given his Sell rating due to a combination of factors concerning Unilever’s current strategic and operational outlook. Despite the CEO’s optimistic tone regarding execution and mid-term growth prospects, there is a reliance on macroeconomic improvements that may not lead to the structural changes needed for Unilever’s transformation. The company’s focus on premiumisation, aiming to increase sales in higher-margin segments, faces challenges as downtrading in most categories remains insignificant. This suggests that the expected growth in gross margins may not materialize as planned.
Additionally, while Unilever is actively engaging in portfolio actions, such as separating its Ice Cream division and disposing of non-core food brands, the focus on smaller, bolt-on acquisitions in key markets like the US and India presents challenges. These acquisitions need to be digitally native, scalable, and synergistic, but finding and integrating suitable targets at reasonable valuations is difficult. The absence of transformational deals further limits the potential for significant upside, contributing to the Sell rating.

In another report released today, RBC Capital also maintained a Sell rating on the stock with a p4,000.00 price target.