Unilever Buy Rating Maintained
Unilever (UN), (UL) has benefited from the 'Path to Growth' strategy in terms of expanding margins, building momentum of key brands, rationalizing costs, and streamlining the asset base. Impressively, the underlying operating margin is rising despite rising input costs in the first half of 2008. In addition, the developing and emerging markets are expected to continue driving incremental topline growth.
Unilever has simplified the management hierarchy whereby the dual chairman structure has been replaced by a structure comprising a single chief executive officer and a non-executive Chairman. The organizational changes will expedite decision-making, improve execution, and enhance customer focus. The one-to-one equivalence between PLC and NV shares should also improve financial transparency.
The company generates strong cash flow, which is being used to increase shareholder value through share repurchases and dividend increases. The Buy rating is maintained on Unilever. The shares have traded in a P/E multiple range of 11 to 24 over the last five years. We expect the stock's P/E to reach the high-end valuation levels over time. The target price of $39.75 is based on 20 times trailing 12 month earnings.
Eagle Test Sells for a Profit
Headquartered in Buffalo Grove, Illinois, Eagle Test Systems, Inc. ( EGLT ) designs, manufactures, sells and services automated test equipment (ATE) for the semiconductor industry. The company's test systems test analog, mixed-signal, and RF (Radio Frequency) semiconductor devices.
Teradyne, Inc. (TER) has offered to acquire Eagle Test Systems for $250.0 million. Teradyne values EGLT at $15.65 a share, representing a 10.4% premium to Friday's closing price of $14.18. The firm recently also agreed.
EGLT is trading at 13.7x multiple to our 2009 estimated earnings (P/E). EGLT's business and operating results depend significantly on the level of capital expenditures by companies in the semiconductor industry. The balance sheet has improved every year since 2004 as cash has climbed to $112 million. The stock should trade at or near its $15.65 acquired price. We reiterate our Buy recommendation.
UST Stays a Sell on Altria Bid
UST, Inc. (UST) is the leading producer of moist smokeless tobacco products and dominates the premium sector of the domestic market. However, the company has been steadily losing market share to discounters in the sub-premium categories over the last 15 years. With the announced acquisition by Altria Group (MO) for $69.50 per share in cash, the potential price appreciation for UST stockholders is now limited.
