The strength of Unilever (LSE: ULVR) (NYSE: UL.US) has always been its slow but steady growth, with its range of top-selling brands making ever more inroads into the world’s homes.
But according to the City’s analysts, that growth is set for a pause in 2014 — after two years of rising earnings per share (EPS), we’re in for a small fall of 1% this year.
Price slipping
In the longer term it’s unlikely to be a cause for worry, as there’s already a return to 8% EPS growth marked in for 2015, but the bearish outlook for this year has had a negative effect on the share price — it’s down 5% over the past 12 months to 2,639p, while the FTSE 100 has picked up 3%.
Unilever has been offering a steady dividend yield of around 3.5% over the past few years, but its cover by earnings has been falling a little — from 1.62 times in 2012 to 1.48 times in 2013, and it drops to 1.42 times based on 2014 forecasts.
That’s still respectable cover, but yields of around 3.5% are really nothing special these days and Unilever’s shares are on a relatively high P/E rating — it’s up as high as 20 looking forward to 2014, while the FTSE is currently on an average P/E of under 14.
The trend
A year ago the pundits’ consensus was for EPS of 156p for this year, but since then it has been slowly scaled back to the 131p they’re expecting now. At the same time, we’ve seen the dividend forecast pared a little, from 94.5p 12 months ago to 92.4p today.
Individual opinions are pretty widely spread, with four out of 18 forecasters rating Unilever as a Buy or a Strong Buy, five taking Sell or Strong Sell stances, and the remaining nine sticking with Hold.
I can understand the attraction of investing in Unilever, and if you buy now and hold for a couple of decades, you’re almost certainly not going to lose money. It’s also one of the best defensive shares around.
But are we really in defensive times now? I don’t think so.
A bit pricey?
What’s more, the Unilever share price has climbed ahead of the FTSE over the past three years, and I think that’s a cause for concern if you’re thinking of buying now — if I was ever asked to name a company I thought deserved to be valued close to an index tracker, I’d go for Unilever.
For me, Unilever is a great share for the very long term, but right now there are better bargains to be had.
