Unilever Buy Rating Maintained

Unilever (UN), (UL) has benefited from the ‘Path to Growth’ strategy in terms of expanding margins, building momentum of key brands, rationalizing costs, and streamlining the asset base. Impressively, the underlying operating margin is rising despite rising input costs in the first half of 2008. In addition, the developing and emerging markets are expected to continue driving incremental topline growth.

Unilever has simplified the management hierarchy whereby the dual chairman structure has been replaced by a structure comprising a single chief executive officer and a non-executive Chairman. The organizational changes will expedite decision-making, improve execution, and enhance customer focus. The one-to-one equivalence between PLC and NV shares should also improve financial transparency.

The company generates strong cash flow, which is being used to increase shareholder value through share repurchases and dividend increases. The Buy rating is maintained on Unilever. The shares have traded in a P/E multiple range of 11 to 24 over the last five years. We expect the stock’s P/E to reach the high-end valuation levels over time. The target price of $39.75 is based on 20 times trailing 12 month earnings.

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