Which Is A Better Pick – Unilever Or Nike Stock?

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We believe that Nike (NYSE: NKE) is currently a better pick over Unilever (NYSE: UL). The decision to invest often comes down to finding the best stocks within the scope of certain characteristics that suit an investment style. In this case, although these companies are from different sectors, with Nike a consumer cyclical and Unilever a consumer defensive stock, they share a similar market capitalization of around $140 billion and a revenue base of $50-60 billion. NIKE trades at a higher valuation of 2.8x trailing revenues, compared to 2.4x for Unilever, and we think that this valuation gap seems justified, given Nike’s superior revenue growth and financial position. In the sections below, we discuss why we think NKE will outperform UL in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation.

1. Unilever Stock Has Fared Better Than Nike In The Last Three Years

UL stock has seen little change, moving slightly from levels of $60 in early January 2021 to around $55 now, while NKE stock has suffered a sharp decline of 30% from levels of $140 to $95 over the same period. This compares with an increase of about 45% for the S&P 500 over this roughly three-year period.

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UL has had a poor run, with the stock losing value in each of the last three years. Returns for UL stock were -11% in 2021, -6% in 2022, and -4% in 2023, while the returns for NKE stock were 18% -30%, and -7% over these years, respectively. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that UL underperformed the S&P in 2021 and 2023 and NKE underperformed the S&P in 2021, 2022, 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 WMT, PG, and COST, 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.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could UL and NKE face a similar situation as they did in 2021 and 2023 and underperform the S&P over the next 12 months — or will they see a strong jump? We think Nike stock will fare better than Unilever in the next three years.

2. Nike’s Revenue Growth Is Better

Nike has seen its revenue rise at an average annual rate of 11% between 2020 and 2023 (Nike’s fiscal ends in May), compared to 1% for Unilever.

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 been sluggish, falling 4% since 2020. 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 in the coming quarters. 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 will be a positive for the company.

Nike’s revenue grew 37% from $37.4 billion in 2020 to $51.2 billion in 2023. Men’s footwear and Jordan Brand have fared well for Nike, seeing both – volume and average selling price trend higher in recent years. However, the athleisure giant has been grappling with supply chain constraints and a slower-than-expected recovery in China lately. Nike’s revenue isn’t growing as much as expected, with total sales rising a mere 0.9% for the nine-month period ending Feb 2024. Although Nike has a huge competitive advantage due to its brand value, the company’s management expects only a 1% full-year revenue growth in fiscal 2024.

3. Unilever Is More Profitable But Nike Has A Better Financial Position

Unilever’s operating margin of 16.4% in 2023 aligns with the levels seen in 2020, while Nike’s operating margin expanded from 8.3% to 11.5% over this period. However, Nike’s margins have been under pressure since 2021 and have declined by 400 bps since. This can be attributed to inflation curbing consumer spending and pushing up freight costs for the company. Furthermore, the margins were under pressure because of elevated inventory levels during this period.

Looking at financial risk, Nike fares better than Unilever, with its 9% debt as a percentage of equity being lower than 23% for the latter. Moreover, its 28% cash as a percentage of assets is higher than 6% for Unilever, implying that Nike has a better debt position and more cash cushion.

4. The Net of It All

We see that although Unilever is more profitable, Nike has seen superior revenue growth and has a better financial position. Now, looking at prospects, we believe NKE is the better choice of the two, given its attractive valuation. At its current levels, UL stock is trading at 2.2x trailing revenues, versus the last three-year average of 2.1x. On the other hand, Nike’s stock is trading at 2.8x revenues, versus a 4.5x average over the last three years. Our Unilever Valuation and Nike Valuation dashboards have more details.

While some of this decline in P/S multiple for Nike makes sense, given the slowing sales growth and pressure on its margin, we think the negatives are largely priced in now. And its stock will likely fare better than Unilever in the next three years.

While NKE may outperform UL in the next three years, it is helpful to see how Unilever’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 UL Return 2% 16% 38%
 NKE Return -1% -14% 84%
 S&P 500 Return 3% 14% 142%
 Trefis Reinforced Value Portfolio 3% 7% 660%

[1] Returns as of 6/13/2024
[2] Cumulative total returns since the end of 2016

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