Given its better prospects, we believe that Unilever (NYSE: UL) is currently a better pick than its sector peer, Procter & Gamble stock (NYSE: PG). UL stock trades at 19x forward earnings, versus 26x for PG stock. However, we think that this gap will narrow in favor of UL as it sees volume growth across categories. There is more to the comparison, and in the sections below, we discuss why we think UL will outperform PG in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation.
1. PG Stock Has Fared Better Than UL
UL stock has seen little change, moving slightly from levels of $55 in early January 2021 to around $60 now, vs. an increase of about 45% for PG stock from $125 to $180 over this period. In comparison, the S&P 500 index has risen 60% over this roughly four-year period.
UL has had a poor run, with the stock losing value in each of the last three years. Returns for the stock were -8% in 2021, -3% in 2022, and 0% in 2023. Even PG stock returns of 21%, -5%, and -1% in the last three years, were far from consistent. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that UL and PG underperformed the S&P in 2021 and 2023.
In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Consumer Staples sector including KO, PEP, and CL, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
2. P&G’s Revenue Growth Is Better
Unilever’s revenue has risen at an average annual rate of 0.9% from $62.4 billion in 2020 to $63.9 billion in 2023, while P&G has seen its sales rise at a 3.4% average rate from $76.2 billion in fiscal 2021 to $84.0 billion in fiscal 2024 (fiscal ends in June). However, this can be attributed to the strengthening of the USD lately. The company’s reported sales in Euros rose at an average annual rate of 5.7%.
Unilever’s revenue can be clubbed into three segments – Personal Care, Food & Refreshments, and Home Care. While personal and home care sales have trended well in recent years, food and refreshment sales have seen slower growth. The growth in personal and home care segments can primarily be attributed to pricing gains. However, as we look forward, the company expects volumes to rise. Even if we look at the latest results, Unilever reported volume growth across categories. The company’s sales were up 4.3% for the nine-month period ending Sep 2024, led by a 2.9% rise in volumes and 1.3% pricing gains.
Although the company has benefited from pricing growth in recent years, we don’t think it can rely on price increases to drive long-term revenue growth. Consumers tend to shift to cheaper alternatives or reduce their overall spending if the prices continue to rise. As such, volume growth for Unilever is a positive for the company.
Procter & Gamble’s revenue growth has lately been led by pricing gains over volume growth. The company reported a 4% rise in total organic sales in fiscal 2024, driven by a 4% growth in pricing, while volume/mix remained flat. P&G’s largest segment is Fabric & Home Care, contributing around 35% of the company’s revenues. Also, the segment, along with Healthcare, has driven the company’s overall sales growth in recent years, while the growth has been tepid for its other segments, including Beauty and Baby Care.
P&G is facing headwinds for its Beauty products sales, primarily prestige beauty products in China. The company saw a 5% fall in Beauty sales in the previous quarter. Within Beauty, sales for Skin Care products plunged 20% due to lower volume and unfavorable mix. China isn’t seeing any pickup in prestige beauty demand for several foreign brands, a trend expected to continue in the near term, weighing on P&G’s skincare products sales. Furthermore, P&G is also losing market share for its baby diapers.
3. P&G Is More Profitable And Offers Lower Financial Risk
Unilever’s adjusted net margin has risen from 8.6% in 2020 to 10.4% in 2023, while P&G’s 19.4% net income margin in fiscal 2024 aligns with that in 2021.
Looking at the financial position, P&G again fares better. Its debt has increased from $32.8 billion in fiscal 2021 to $36.2 billion now, while Unilever’s debt has declined from $33.6 billion in 2020 to $31.8 billion in 2023. However, with P&G’s market capitalization being 3x of Unilever, its debt as a percentage of equity is much lower at 9%, vs. 23% for the latter.
P&G’s cash has increased from $10.3 billion to $12.2 billion in the last three years, while the same has declined from $6.8 billion to $4.5 billion over the same period for Unilever. P&G’s 10% cash as a percentage of assets fares better than 6% for Unilever.
Overall, P&G has a better debt position as well as more cash cushion.
4. The Net of It All
We see that P&G has seen better revenue growth, is more profitable, and offers lower financial risk. This also explains why investors have assigned a higher valuation multiple for PG stock. But, looking at prospects, we believe UL is the better choice of the two, given its robust volume growth seen across categories. Overall, P&G faces headwinds for its beauty and baby care segment, while Unilever appears to be more resilient with growth in Dove brand and its well-being products to compensate for broader softness in prestige beauty. Unilever’s largest segment – home care – seems to be doing well, with mid-single-digit volume growth so far this year.
From a valuation perspective, both stocks are trading at multiples higher than the historical average. UL stock, at levels of around $60, is trading at 19x forward expected earnings of $3.11 per share, versus the stock’s average P/E ratio of 18x over the last three years. Similarly, at levels of $180, PG stock is trading at 26x forward expected earnings of $6.94 per share, compared to the stock’s average P/E ratio of 24x over the last three years.
Given the high valuation multiples, we think both stocks may offer limited upside in the near term. Still, we think investors will be better off picking UL stock over PG stock for robust long-term gains.
While UL may outperform PG in the next three years, it is helpful to see how Procter & Gamble’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
| Returns | Nov 2024 MTD [1] |
2024 YTD [1] |
2017-24 Total [2] |
| UL Return | -3% | 25% | 89% |
| PG Return | 9% | 25% | 163% |
| S&P 500 Return | 5% | 26% | 167% |
| Trefis Reinforced Value Portfolio | 9% | 25% | 828% |
[1] Returns as of 11/27/2024
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
