J.P. Morgan maintains an "Overweight" rating on Unilever PLC Sponsored ADR (UL.US): the new medium-term framework strengthens growth quality, and high-single-digit EPS growth is expected to drive a re-rating.

J.P. Morgan issued a research report maintaining its "Overweight" rating on Unilever PLC Sponsored ADR (UL.US), setting a target price of EUR 65 for its European shares and 5,700 pence for its UK shares. The report noted that ahead of Capital Markets Day (CMD), Unilever PLC Sponsored ADR announced a new medium-term growth framework following the separation of its food business, along with an operating model centered on "global strategy, local execution." The bank believes the new targets strengthen the quality of the company's growth plan, and the productivity savings target also helps bolster market confidence in its earnings upside potential. Unilever PLC Sponsored ADR stated that the group's medium-term target is to achieve 4%-6% organic sales growth, including at least 2% volume growth. This target is consistent with the company's previous statements on the growth potential of its Core Home and Personal Care (Core HPC) business, and also aligns with current market consensus expectations of over 4% organic sales growth for fiscal years 2026-2032. The company also expects modest expansion in underlying operating margin, supported by GBP 1 billion in productivity savings by fiscal year 2029. These savings will come from the elimination of stranded costs related to the food transaction, as well as broader organizational simplification. For fiscal year 2027, management expects performance to fall within the aforementioned medium-term growth plan; J.P. Morgan currently forecasts core organic sales growth of 5.6%, a 22 basis point year-over-year contraction in margin (on a simulated basis), and believes this guidance confirms FY2027 market consensus. Regarding the operating model, Unilever PLC Sponsored ADR will retain a streamlined group center focused on portfolio focus, long-term resource allocation, and global scaling of Power Brands; operational and commercial execution will be delegated to local markets. Markets will be organized into six performance units, each led by a regional president with full P&L responsibility across categories. Most of the new leadership team comes from within the existing organization, with the North America President being the only external appointment, expected to join on January 1 of the following year and to be formally announced in the coming weeks. Unilever PLC Sponsored ADR stated that the new model aims to combine centralized global strategy with local execution capabilities, drive portfolio focus and simplification, and leverage market-leading brands and premium digital-native brands. CEO Fernando Fernandez said: "Our new operating model will combine centralized global strategy with excellent local execution, with the goal of achieving portfolio focus and simplification, and fully leveraging our market-leading brands and premium digital disruptors. We are starting from a position of strength, and our priority is to deliver sustained, competitive volume-driven growth and consistent hard-currency earnings expansion." Alongside the rollout of the new operating model, Unilever PLC Sponsored ADR's reporting structure will also be adjusted. The company will henceforth report by three major categories: Beauty & Personal Care, Home Care, and Other; geographic disclosure will cover five regions: North America, Europe, Latin America/Africa/Middle East/Turkey, India, and Asia (combining North Asia and South Asia The Pacific). J.P. Morgan believes this adjustment will help investors more clearly track execution performance across categories and regions. J.P. Morgan noted in the research report that Unilever PLC Sponsored ADR is seeking to shift toward a sustainable growth model following the renewal of business unit leadership, revisions to incentive structures, and a greater focus on value creation (with metrics tied to USG, ROIC, and TSR). As these changes gradually reflect in operational delivery, volume growth combined with gross margin improvement will drive operating margin expansion, with high-single-digit EPS growth expected in the medium term, helping the stock re-rate; meanwhile, lower net debt/EBITDA also increases the potential to enhance total shareholder return through buybacks.