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Stock Strategist

Unilever's Competitive Prowess Untarnished

Thanks to its vast brand portfolio, the company has garnered negotiating leverage over key retailers.

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 Unilever's (UL)/(UN) third-quarter update shed light on concerns that surfaced last month. The firm has stressed recently that emerging-markets growth is trending down (56% of consolidated sales), topping out at just 5.9% in the third quarter--a marked deceleration from 10.4% in the first quarter and 10.3% in the second. Conversely, developed markets posted minor sequential improvements, as sales ticked down just 0.3% compared with negative 1.9% in the first quarter and negative 1.3% in the second. North America was particularly weak, as sales tumbled 1.9%; this is even more dismal since it compares with a 3.5% drop last year. Beyond weakness in spreads and intentional pruning in its ice cream lineup, management cited increased competitive intensity in North American hair care and deodorants.

Despite these pressures, we're standing firm on our wide moat rating, which reflects Unilever's expansive global distribution platform and portfolio of essential products. Unilever hasn't wavered from its full-year forecast of volume growth above its markets and sustainable margin improvement, and we continue to expect the firm to generate 5% annual sales growth over the longer term and 16% operating margins by 2022--about 100 basis points above fiscal 2012 adjusted margins. Trading at an attractive discount to our valuation and with a dividend yield above 3%, Unilever should appeal to growth and income investors.

Erin Lash does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.