Assessing Unilever Shares After Product Portfolio Streamlining and a 3.1% Monthly Dip

• Ever wondered if Unilever stock is offering hidden value for savvy investors right now? That is exactly what we are set to dig into.
• Although Unilever’s share price has been steady lately, rising 1.0% over the past week, it has dipped by 3.1% in the past month and is down just 1.2% over the last year. This hints at a company in transition rather than in crisis.
• Recent headlines have spotlighted Unilever’s efforts to streamline its product portfolio and focus on core brands. These moves have drawn market interest and some debate about future growth. The company’s divestment of non-core units and increased attention to sustainability initiatives have shaped investor perceptions over the past several months.
• Our valuation check gives Unilever a score of 4 out of 6. This means it looks undervalued by most (but not all) measures; however, there is more than one way to gauge fair value, and we will share an alternative approach later that could change how you look at the stock.

Find out why Unilever's -1.2% return over the last year is lagging behind its peers.

Approach 1: Unilever Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a common valuation method that estimates a company’s worth based on its projected future cash flows, which are then discounted back to today’s value. In Unilever’s case, this method uses both analyst estimates and longer-term projections to reflect the company’s growth potential and profitability.

Currently, Unilever generates Free Cash Flow (FCF) of €6.60 Billion over the latest twelve months. Analyst projections suggest FCF should grow over the next several years, with cash flow expected to reach €7.43 Billion by 2026 and climb as high as €9.40 Billion by 2030. After five years, projections are extrapolated, but the overarching trend remains positive, with anticipated FCF of about €9.03 Billion in 2029. All estimates are presented in the company’s reporting currency, euros.

According to the DCF calculation, the estimated intrinsic value for Unilever stands at €56.58 per share. This valuation suggests Unilever shares are trading at a 20.1% discount compared to their fair value. In practical terms, the DCF model points to meaningful upside for investors considering Unilever as an undervalued opportunity at this time.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Unilever is undervalued by 20.1%. Track this in your watchlist or portfolio, or discover 928 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Unilever.

Approach 2: Unilever Price vs Earnings

The price-to-earnings (PE) ratio is a popular valuation metric for profitable companies like Unilever because it allows investors to gauge how much the market is willing to pay for each pound of earnings. This metric is particularly useful when earnings are reliable, providing a quick snapshot for comparing Unilever both to its industry peers and to the broader market.

Determining what a “normal” or fair PE ratio should be depends on growth expectations and perceived risk. Companies with higher anticipated growth and lower risk typically command higher PE ratios, while firms facing challenges or uncertainty often see these multiples contract.

Unilever currently trades at a PE ratio of 23.1x. This sits above the personal products industry average of 21.5x but is comfortably below the peer average of 34.2x. Simply Wall St’s proprietary “Fair Ratio” takes into account not only Unilever’s growth prospects, profit margins, and risk profile, but also considers market cap and industry trends. For Unilever, the Fair Ratio is 23.4x.

Unlike basic peer or industry comparisons, the Fair Ratio gives a tailored assessment by adjusting for unique company qualities and risks that may not be captured by broader averages. This approach helps clarify whether Unilever is trading at a premium or discount relative to expectations based on its specific characteristics.

With Unilever’s current PE of 23.1x nearly matching its Fair Ratio of 23.4x, the shares appear to be reasonably valued relative to earnings-based valuation benchmarks and their fundamentals.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1434 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Unilever Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your story behind the numbers, an easy and accessible way to connect what you believe about Unilever’s future to a financial forecast, resulting in a fair value estimate you can actually explain. Narratives help investors blend their perspective on things like future revenue, profit margins, risks, and catalysts with the company’s data, then compare the fair value output to Unilever’s current share price to see if it is a buy, sell, or hold. This tool, built right into the Community page on Simply Wall St and used by millions of investors worldwide, updates dynamically whenever new news or results are released, ensuring your view stays relevant. For example, some investors’ narratives for Unilever are highly optimistic, assuming premium product growth and margin expansion, resulting in price targets above £59, while others are more cautious, factoring in regional challenges to arrive at targets below £39. Narratives empower you to make better investment decisions by showing how real-world events connect to the numbers and inviting you to build and update your own view.

Do you think there's more to the story for Unilever? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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