The FTSE 100’s Hottest Growth Stocks: Unilever plc

Today I am outlining why Unilever (LSE: ULVR) (NYSE: UL.US) could be considered a terrific stock for growth hunters.

The value case fails to impress…

Since the 2008/2009 financial meltdown smashed customer spending power across the globe, Unilever has been unable to string together a period of prolonged earnings growth. And even though the company has punched expansion of 8% and 3% in 2012 and 2013 respectively, unilever2these growth rates hardly spread the ‘wow’ factor.

And in the medium term, City analysts expect the impact of enduring wider macroeconomic pressure on consumers’ wallets to cause Unilever’s earnings to flatline at around 162.3 euro cents per share in the current year. An expected pick-up in retail activity from next year is anticipated to thrust earnings 9% higher in the following 12-month period, to 177.6 cents, however.

But on the face of it these figures still fail to present compelling value. This year’s predicted earnings creates a hefty P/E multiple of 20.7 times prospective earnings — soaring well above the benchmark of 15 or under which signals attractive value for money — and despite next year’s strong earnings improvement this still clocks in at 19.

… but keep your eye on the long game

Despite this, however, I believe that Unilever’s core appeal comes from the long-term benefits of its sprawling presence across developing markets. The business currently sources more than 55% of total revenues from emerging markets, and Unilever is using its financial might to roll out its gigantic product range in new markets.

During the first six months of 2014 alone the company introduced its Lifebuoy soap in China, Clear shampoo in Japan and Omo laundry detergent in the Middle East. As well, Unilever is also ploughing vast sums into developing product innovations and offshoots from key brands, such as its compressed aerosol deodorant range across its Sure and Axe labels in recent months.

This strategy is enabling the company to keep sales ticking higher despite the effect of stagnating customer activity and heavy discounting in Western markets, and Unilever saw underlying group sales rise 3.7% during January-June to €24.1bn.

And Unilever is also engaged in extensive restructuring to create a more efficient, earnings-generating machine for future years. Most notably the firm has been cutting its Foods division down to size through sales such as its Ragu and Bertolli pasta sauce labels in North America, and is using the proceeds to expand in smoking growth areas. Indeed, the business secured a majority stake in China’s water purification specialists Qinyuan in March.

In my opinion, Unilever has both the expertise and financial clout — not to mention tremendous pricing power achieved through its stable of industry-leading labels — to keep growing sales in key emerging regions, a scenario which I believe should power earnings higher in coming years.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK owns shares of 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.