Valuation has moved beyond target despite support from sector rotation and operational progress.
Deutsche Bank has downgraded Unilever PLC (LSE:ULVR) to 'hold' from 'buy', keeping its price target unchanged at 5,150p, after a sharp rally in the shares left them trading above valuation support.
It said the household products giant's share price had risen 10% over the past month and was up 14% from its January lows, leaving the stock modestly above Deutsche Bank’s target and closing at 5,250p.
Deutsche said the shares were now trading on around 19 times forward 12-month earnings, representing a 19% premium to the wider market.
The bank said it recognised the potential for relative outperformance as investors rotate into consumer staples, particularly in a more uncertain macroeconomic environment.
However, Deutsche said Unilever’s price-to-earnings multiple relative to its sector coverage was at an all-time high.
The broker added that the valuation was also close to an all-time high when compared with European household and personal care and food peers.
Deutsche Bank said it continued to view positively the operational transformation underway at Unilever under its current chief executive.
In afternoon trading, the shares were off 0.7% at 5,215p.