Unilever Stock Double-Upgraded By BofA: ‘More Growth Expected’

Unilever (LON: ULVR) shares gained more than 1% in Thursday's session after the stock was given a boost by analysts at Bank of America, who double-upgraded it to Buy from Underperform.

The US investment bank also raised its price target for the stock to 5,600p from 3,800p, reflecting a potential 19% upside from Wednesday's close.

“More growth [is] expected,” said BofA, adding that it sees organic growth reaching a CAGR of 4.6% in 2024 to 2027 “on the back of stronger underlying growth (more favourable sub-category exposure post portfolio measures) and market share improvement (management turnaround: focus on power brands, innovation, better return on investments).”

Furthermore, the separation of Unilever's Ice Cream business is seen as being beneficial for growth, management focus, and valuation. The bank also believes the move shows that Unilever's management and the board are aligned on changing strategic business exposure, and that it caps the downside if Ice Cream underperforms.

“Comparable-company and M&A case studies suggest to us that Ice Cream deserves to trade at c. 10x EV/2025E EBITDA (EV of EUR14.5bn), while RemainCo warrants a higher valuation,” writes BofA.

Finally, BofA believes that Unilever's 2024E challenges, including more local competition in emerging markets and more private label competition amid weakening consumers in developed markets are well understood.

Overall, BofA notes that Unilever's recent organic and margin growth has led to a rerating towards the sector 2024PE of c. 19x.

“Moreover, it suggests that the turnaround, likely started by the previous management team, is successfully continued by the current leadership and might take less time to materialise,” the bank adds.