Unilever (LSE: ULVR), Associated British Foods (LSE: ABF) and Carnival (LSE: CCL) are three highly rated consumer focussed stocks that have a lot to prove in the coming years. Expectations that these companies can deliver robust earnings and revenue growth are high, and so too are their valuation multiples.

But, given that global economic growth is slowing and competitive pressures are intensifying, there are very real concerns that these stocks may miss the high expectations set by analysts and investors alike.


After a 12% gain over the past 52-weeks, shares in Unilever now trade at 22.2 times expected 2016 earnings and carry a yield of just 2.7%. City analysts expect underlying earnings per share will grow 3% in 2016, and a further 7% in 2017. Although this is slower than the 14% growth achieved in 2015, there are reasons to be cautious.

Competition between home care and food brands is intensifying, and underlying sales volume growth is beginning to slow. Unilever is also being held back by its greater exposure to emerging markets, which account for nearly 60% of its total sales.

Longer term, these headwinds will likely be offset by growth coming from its fast expanding personal care business, which continues to see volumes and operating profits grow steadily. Unilever also benefits from tailwinds coming from its cost-cutting programme, which is leading to margin expansion. In 2015, core operating margins rose 30 basis points, to 14.8%.

But with valuations now near historic highs, I would rather wait for a dip before buying its shares.

Associated British Foods

The market has whipsawed shares in Associated British Foods (ABF) following recent volatile trading conditions and exchange rate fluctuations. Shares in ABF fell from a 52-week high of more than £36 to currently 3,360p, but that still leaves its shares 12% higher than a year ago.

On the valuation side, ABF shares trade at a forward P/E of 33.5, which seems rather pricey relative to its peers. What’s more, its dividend yield, which currently sits at 1.1%, is well below the average FTSE 100 yield of 4.0%.

These challenging valuations mean that the company will have a lot more to prove to its shareholders, and all while it faces some clear headwinds and is exposed to a multitude of potential negative events.

This includes a troubling sugar business and Primark’s risky expansion plans in the US. My opinion is the market is overestimating ABF’s ability to rebound, as competition in the US is fierce and margins may not be wide enough to cope with the higher operational costs caused by its expansion plans.


The near tripling of profits for cruise operator Carnival in the first quarter this year is a sign that better times are coming. Lower fuel prices and the launch of new ships is leading to significant margin improvement and rising customer numbers. And because of the long investment cycles in the sector, I expect margins will continue to show incremental improvement over the next few years .

Because of these near-term earnings drivers, I expect Carnival should continue to deliver robust growth next year. City analysts seem to agree, with forecasts of underlying earnings per share of $3.35 per share this year and $3.97 next year – giving its shares forward P/Es of 15.9 and 12.9 for 2016 and 2017 respectively. That’s very attractive for a stock which is set to see earnings grow by 24% this year and 19% in 2017.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.