Broker snap: Credit Suisse downgrades Unilever on premium valuation

17th Jul 2013 11:18

Credit Suisse has cut its rating for cosmetics, foods and household products giant Unilever from 'neutral' to 'underperform', saying that the stock has become one of the more expensive consumer staples.The broker said that the company has "come a long way" after restoring growth, stabilising and improving market shares and upping investments (of which Personal Care has been the forefront of)."But there is a lot more to do in both Household and Food. The former has delivered better growth, but at a cost to returns. The latter has seen growth slow sharply and market shares come under pressure. More investment is needed," Credit Suisse said.Despite the negatives, the stock's valuation has risen to a 10-year high on a price-to-earnings (PE) basis, the broker pointed out."On an economic PE, Unilever again stands at a significant premium to its peers."Credit Suisse concluded: "There is a lot that is better today about Unilever than for many a year, but the valuation looks fully up with events to us, in a sector that looks expensive in general."Earnings per share forecasts have been reduced by 3.0% and the stock's target price has been trimmed from 2,800p to 2,730p.The share price was down 2.21% at 2,740p by 11:17 on Wednesday.BC