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Unilever Shares Up on Speculation of Food Brand Spinoff

According to the British newspaper The Sunday Telegraph and as stated by Reuters, the London-based Unilever plc UL is planning to sell some of its food brands worth 6 billion pounds ($7.4 billion).

According to sources, consumer products leader Unilever is seeking to sell its Flora margarine and Stork butter businesses. Further, some private equity firms including Bain Capital, CVC, Clayton Dubilier and Rice have also begun to build offers for the company’s spreads business, as Unilever has been witnessing a slowdown in its spreads business which is hurting profits at its Foods segment.

Even though the company is not very keen on segregating food business from the home and personal care businesses in the near term, major shareholders of Unilever have expressed views supporting the separation.

Unilever PLC Price, Consensus and EPS Surprise

 

Unilever PLC Price, Consensus and EPS Surprise | Unilever PLC Quote

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We note that last week, the Anglo-Dutch company stated that it is considering a comprehensive review in order to return more cash to shareholders and undertake medium-sized acquisitions as well as indulge in more aggressive cost cuts, as per Financial Times.

The move to undertake a business review came after the maker of Dove products and Ben & Jerry’s rejected Kraft Heinz Co.’s KHC $143 billion surprise offer in Feb 2017, as Unilever did not find any strategic or financial benefit in it. The business review will evaluate its options regarding its portfolio, organization, cost structures, balance sheet and use of cash.

In this regard, Unilever is considering raising its net debt from 1 times now to 2.5 or 3 times earnings before interest, tax and depreciation. Further, in order to boost shareholder returns, the company has already announced a program to save 1 billion euros by 2018.

Overall, we are encouraged by the fact that Unilever is consistently focusing on product improvement through innovation. The company has also accelerated its cost containment measures to cut down unnecessary costs. Unilever has inked multiple deals to fortify its position in home care and personal care products. The company has expanded its portfolio of personal-care brands with recent acquisitions such as Seventh Generation, Dollar Shave Club, Living Proof and Blue Air. These acquisitions are likely to strengthen its portfolio and generate substantial revenues.

Coming to the share price movement, prices have spiked following the news of the probable takeover. The stock rallied 19.0% since Feb 16, outperforming the Zacks categorized Soap & Cleaning Preparations industry which gained just 6.7%.

Unilever currently has a Zacks Rank #2 (Buy).

Stocks That Warrant a Look

Other favorably placed stocks in the food industry include ConAgra Foods, Inc. CAG and Pinnacle Foods, Inc. PF, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While ConAgra Foods has a long-term earnings growth rate of 8.00%, Pinnacle has a growth rate of 8.33%.

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Unilever PLC (UL): Free Stock Analysis Report
 
ConAgra Foods Inc. (CAG): Free Stock Analysis Report
 
Pinnacle Foods, Inc. (PF): Free Stock Analysis Report
 
The Kraft Heinz Company (KHC): Free Stock Analysis Report
 
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