Fund managers have been rotating into FTSE 100 shares over the last month. But I think Unilever (LSE:ULVR) could be set to outperform the index over the next year.
The firm is in the middle of a substantial restructuring process. And this could significantly boost its growth prospects over the long term.
Restructuring
Over the last 15 months or so, Unilever has been taking the view that less is more. Its belief is that its growth of its strongest lines has been stunted by some of its weaker ones.
Rather than trying to figure out how to get more from these underperforming divisions – most notably ice cream – the company has decided to divest them. And this has worked well, so far.
Unencumbered by weaker product lines, Unilever reported sales growth of 4% in 2024 and an increase in earnings per share of almost 15%. As a result, the stock’s up 15% in the last year.
Despite the strong progress, the company isn’t stopping there. It’s looking to make further divestitures to continue its restructuring process and has appointed a new CEO to push things along.
There are clearly differences in terms of performance across Unilever’s various divisions. The Foods unit managed 2.6% sales growth in 2024 while Beauty & Wellbeing achieved 6.5%.
My belief is that further divestitures will continue to push the share price higher over the next 12 months. But there are some potential issues that could get in the way of this thesis.
Growth
I like Unilever’s transformation prospects. But divestitures can only take the company so far – what’s really going to impact the share price is the performance of the remaining businesses.
Investors got a good illustration of this in February. The stock fell 9% when the firm reported slowing sales growth in the fourth quarter and anticipated a challenging start to 2025.
Importantly, there are some things Unilever can’t do much about. The firm’s expecting a weak trading environment in the near future and the risk is that this lasts longer than expected.
It’s natural to think the company is somewhat protected from economic downturns. And while this is true to an extent, it relies on customers choosing its brands over cheaper alternatives.
This might provide a limit to how far Unilever shares can go. But I think it will have enough to outperform the FTSE 100 over the rest of the year.
The company’s strengths are well-known. And if investors can see enough signs of progress to conclude there’s more growth coming, I anticipate strong returns from the stock.
Long-term investing
Investing well involves more than just looking at what might happen in the next 12 months. But the ongoing changes at Unilever could set the firm up for long-term success.
Of course, this is my opinion and I could be wrong. But I think the stock’s worth considering – especially for investors looking for passive income. There’s a 3.25% dividend yield to start with and I expect continued growth to push this higher.
The ability to grow while returning cash to shareholders can be a formula for big returns. And Unilever might be a defensive stock, but its growth prospects shouldn’t be underestimated.
