Unilever Shares Dip: Analyst Cuts Rating Despite Holding Price Target

Unilever's share price (LON:ULVR) has slipped 0.67% to 5,215 pence this morning, following a downgrade from Deutsche Bank, which cited stretched valuation after a strong recent rally as the catalyst for its revised stance.

Analyst Tom Sykes moved the consumer goods giant to Hold from Buy whilst maintaining his price target at 5,150 pence, a level now below the current share price.

The downgrade comes after a notable period of strength for Unilever shares, which has climbed approximately 10% over the past month and 14% from its January lows. This rally has pushed the shares to trade at a premium to the broader market, prompting Deutsche Bank to reassess its recommendation despite acknowledging positive developments under the company's new leadership.

Unilever now trades at 19 times forward 12-month price-to-earnings, representing a 19% premium to the market. This elevated multiple has raised questions about the scope for further near-term gains, particularly as the stock has surpassed Deutsche Bank's own valuation benchmark. Sykes noted in his research note that whilst the transformation under the new chief executive remains encouraging, the current share price offers limited upside from these levels.

The shift in Deutsche Bank's stance reflects broader concerns about valuation across the consumer staples sector, where strong post-pandemic recovery and renewed investor interest have driven multiples higher. Markets have rewarded Unilever for its strategic refocus and operational improvements, but the pace of the recent advance has prompted analysts to reconsider risk-reward dynamics.

Analyst sentiment on Unilever remains decidedly mixed. Berenberg Bank recently raised its price target from 5,530 pence to 5,600 pence whilst maintaining a Buy rating, signalling confidence in the company's growth trajectory and strategic initiatives. This contrasts sharply with Morgan Stanley's more cautious view. The Wall Street bank downgraded Unilever to Underweight from Equalweight and slashed its price target to 3,775 pence from 4,100 pence, citing concerns over cash conversion metrics and elevated exposure to emerging markets.

Despite the divergent analyst opinions, institutional investor activity suggests underlying confidence in Unilever's long-term prospects. Wellington Management recently increased its stake by 9.3% to approximately 34.7 million shares, a move that indicates sophisticated investors see value in the company's transformation story and market positioning.

The current valuation debate centres on whether Unilever's operational improvements and strategic repositioning justify the premium multiple. The new chief executive has implemented significant changes aimed at streamlining the portfolio and improving margins, initiatives that have resonated positively with markets. However, the speed of the share price appreciation has outpaced some analysts' expectations, creating a natural pause point for reassessment.

The downgrade to Hold rather than Sell suggests Deutsche Bank remains constructive on Unilever's fundamental story but sees the risk-reward balance as less compelling at current levels. For markets, the key question will be whether upcoming trading updates and strategic announcements can validate the premium valuation or whether a period of consolidation lies ahead as the stock digests recent gains.