This blue-chip FTSE 100 stock could return 25% over the next year… if analysts are right

Over the next 12 months, this FTSE 100 stock could reward investors with both double-digit share price gains and healthy dividends.

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Despite the UK stock market’s recent surge, there are a lot of blue-chip FTSE 100 stocks that look undervalued right now. From banks to miners, many companies are trading cheaply.

One stock I’m quite bullish on at present is consumer goods giant Unilever (LSE: ULVR). If analysts at Barclays are right, this stock could deliver a return of about 25% over the next 12 months.

5,200p share price target

On 14 May, Barclays’ analysts raised their price target for Unilever shares from 5,000p to 5,200p. Given that the consumer goods company’s share price is hovering around the 4,300p mark today, this implies that they see the stock rising about 21% over the next 12 months.

With this stock however, share price gains are only part of the story. That’s because the company pays regular dividends.

Currently, the dividend yield on Unilever shares is around 3.6%. Add that to the forecast gain of 21% and we could be looking at a potential return of just under 25% over the next 12 months.

Now, there’s no guarantee that Barclays’ share price target will come to fruition. These targets can be way off the market at times.

However, the analysts at Barclays are certainly not the only ones who believe Unilever shares are capable of generating strong returns going forward.

At Fundsmith’s annual meeting in February, fund manager Terry Smith and his colleague Julian Robins said that they saw Unilever as the Fundsmith stock with the most potential.

Their view was that, with a new management team in place, Unilever has “quite a lot going for it”.

I’m optimistic

Personally, I feel that 5,200p is a realistic price target for the FTSE 100 stock. After all, it has traded near that level before, back in 2019.

Having said that, for the stock to hit that target, a few things would have to happen, in my view.

Firstly, the company would have to show investors more evidence that its ‘Growth Action Plan’ is working. Recent Q1 results were very promising with underlying sales growth of 4.4% and a strong performance from the company’s ‘power brands’. The good results would need to continue.

Secondly, we’d need to see analysts raise their earnings per share (EPS) forecasts for 2025 a little. Currently, the consensus earnings forecast for next year is 292 euro cents, which is roughly 250p at today’s exchange rate. Using that EPS forecast, the price-to-earnings (P/E) ratio would be 20.8 if the share price got to 5,200p. That’s quite a high earnings multiple. A higher EPS forecast would bring the multiple down.

Finally, we’d need to see economic and financial market conditions remain healthy. If the global economy was to weaken from here, or inflation spiked again, we could witness consumers continue trading down to cheaper brands, putting pressure on the company’s revenues. Meanwhile, if the UK stock market was to tank, the shares could experience weakness.

I’m optimistic we’ll see all three scenarios play out. So I’ll be holding on to my Unilever shares. I may even buy more.

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.

Edward Sheldon has positions in Fundsmith Equity and Unilever Plc. The Motley Fool UK has recommended Barclays Plc and 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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