Do Unilever share price falls make this a great value FTSE 100 buy right now?

What should we do when a long-term cash-cow stock falls out of favour? That’s what I’m asking about the Unilever share price today.

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Image source: Unilever plc

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I’ve noticed a funny thing about the Unilever (LSE: ULVR) share price. It tends to be cyclical.

But more than that, in the past few years, it’s mostly moved in the opposite direction to the FTSE 100.

The price was strong during the pandemic crisis, then it fell back when other stocks started to recover.

Perfect safe stock?

That’s classic defensive stock behaviour. In hard times, investors go for things like essential foods, cleaning and personal products. The kind of stuff Unilever sells through its hundreds of brands.

We’re looking at a weak 2023 for the Unilever share price too. And it dipped 3% in early trading after a Q3 update on 26 October.

I think it’s always a good time to buy safe stocks. But I also rate them as ideal for me to buy on the dips.

Third quarter

Before I look at the stock’s valuation, how did the third quarter go? Well, it wobbled a bit. Turnover dropped by 3.8% in the quarter, but I don’t find that too surprising.

Considering the painful effects of high inflation on our pockets, I’d rate it as fairly robust. Unilever’s business is faring a lot better than some, for sure.

And revenue for the nine months is a fraction higher, up 0.4%, with personal products leading the way.

New priorities

I suspect a comment from CEO Hein Schumacher might have spooked the market a bit. He said that “our performance in recent years has not matched our potential. The quality of our growth, productivity and returns have all under-delivered.”

He went on to talk about boosting growth by “stepping up innovation and investment” and by “leveraging the full strength of our operating model.” And some stuff about “strong leadership and stretching goals.”

The update goes into more detail, but it essentially says “we’re going to do everything better“.

Uncertainty = buy?

Until investors see exactly how Unilever is going to do all that, I expect they’ll be cautious.

It looks like we’re in a time of uncertainty for Unilever. But they can be great times to buy, if the share price is weak as a result.

So what are we looking at? A company with an attractive valuation, that’s what I think I see.

Modest valuation

Forecasts put the stock on a price-to-earnings (P/E) ratio of 18 for 2023, with earnings dipping. That might seem a bit rich.

But it sees earnings growing again from 2024, with the P/E down at 16 by 2025.

More importantly for me though, it also sees growing free cash flow and a rising dividend. There’s a 3.8% yield on the cards for this year, and pundits see it growing to 4.2% by 2025.

Great company, fair price?

These are clearly risky times to buy into retail stocks, with inflation and interest rates likely set to stay higher than we expected for longer.

And the Unilever valuation doesn’t make it a dirt cheap screaming buy candidate to me. But I do think it’s what billionaire investor Warren Buffett might call a “wonderful company at a fair price“.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Unilever Plc. 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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