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Here’s why the Unilever share price is flying today

Young woman with face mask using mobile phone and buying groceries in the supermarket during virus pandemic.
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The Unilever (LSE: ULVR) share price was firmly on the front foot this morning as the company announced higher-than-expected sales growth over Q3. Having been on a downward trajectory for the last few months, I see the FTSE 100 consumer goods giant is now something of a bargain. Here’s why.

Sales up

Underlying sales rose 2.5% over its third quarter. This brings growth to 4.4% for 2021 to date and within ULVR’s target range of 3-5% for the year. That feels like an impressive result given how much demand the company saw for its in-home food and hygiene products during multiple lockdowns around the globe in 2020. When a company does well (in spite of tough comparables), it’s worth taking notice.

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Of course, Covid-19 continues to affect trading in some parts of the world (e.g. South East Asia). Even so, Unilever said it had performed well in key markets such as the US, China and India where restrictions were slowly being lifted.

Its e-commerce channel was booming too, having grown 38% over the period. There was also encouraging news on its high-growth businesses. Prestige Beauty and Functional Nutrition both registered double-digit underlying sales increases in the three months.

This is not to say the company is devoid of headwinds. Indeed, Unilever reflected today that cost inflation was at “strongly elevated levels“.  Having already raised prices by 4.1% over the period, the Marmite-maker said this pressure would likely carry on into 2022.

The Unilever share price: what now?

After enduring a volatile 2021, the Unilever share price has sunk back to levels hit during the March 2020 coronavirus crash. That may make some holders understandably uncomfortable. However, it does suggest to me that the stock is now firmly in the ‘buy zone’. 

Sure, the aforementioned inflation looks like sticking around longer than many economists and analysts expected. In addition to this, it’s clear that the pandemic is far from over (infections in some parts of the world are rising again). Throw in the potential for poor weather impacting sales and it’s clear Unilever isn’t devoid of risk.

But do any of these permanently impact the investment case? I don’t think so. Let’s not forget this is a company that boasts an enviable portfolio of ‘sticky’ brands. Shoppers will consider standard purchases in good times and affordable treats in more difficult periods. The company’s truly global reach and product diversification should also help keep sales stable, at least relative to other FTSE 100 companies. 

The dividend stream is also attractive. Before this morning, analysts had Unilever stock down as yielding 3.7% in the current year. That may be far less than other stocks in the FTSE 100, but payouts should be sufficiently covered by profit.

Last year excluded, the company has also been remarkably consistent in raising its dividends on an annual basis. Yes, nothing can be taken for granted. However, it’s this kind of reliability that I reckon makes Unilever is a great core holding for most portfolios. 

Quality (at a discount)

I’ve been a fan of Unilever for many years. Today’s update doesn’t change that. In fact, recent selling pressure makes me think now could be an excellent time for me to snap up the stock. 

Trading for 18 times earnings (a discount to its five-year average P/E of 21), I’d strongly consider adding ULVR to my portfolio today.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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