Big Upside for Unilever With Assist From Skin Care Market

Unilever’s (UL) competes with P&G (PG), L’Oreal (LRLCY), Avon Products (AVP) and Revlon (REV) in the skin care market. The company’s skin care market share increased from an estimated 23% in 2005 to nearly 28% in 2008, but declined to 26% in 2009 as dampened consumer demand amidst a recessionary macroeconomic outlook led to a loss of private label sales in developed markets, as well as local/regional sales in emerging markets.

Given its global presence in the mass skin care market and its capacity for innovation, we expect Unilever to grow market share towards 28% by the end of our forecast period. Comparatively, the Trefis community anticipates a sharper climb towards 31%, suggesting a small upside to our price estimate for Unilever’s stock.

We currently have a Trefis price estimate of $37.89 for Unilever Group’s stock, about 25% above the current market price. We estimate that the company generates 29% of its stock value from skin and hair care brands.

Strong Global Presence

Billion Euro brands Dove and Lux, along with Pond’s and Vaseline products, make Unilever the market leader in the global mass skin care market. Its Vaseline brand, for example, is the top selling hand and body lotion brand in the U.S. We believe that Unilever will leverage its strong brand name and established retailer relationships to increase its global market share.

An established presence in the U.S. and other mature markets will facilitate market share growth, accelerating upside as consumer demand recovers from the prevailing economic recession. Outside of mature markets, Unilever’s Lux brand is a market leader in high growth regions like Arabia, Brazil, Thailand, India and South Africa, while its Vaseline and Dove brands have a presence in over 80 countries. As consumer demand grows rapidly in emerging markets, Unilever is well-positioned to grab market share by virtue of its brand recognition and strong competitive position.

Rising Market Share with Acquisitions and Innovation

Unilever’s acquisition of Sara Lee in 2009 will also add to market share growth momentum, as we’ve previously discussed (See "Unilever’s European Expansion Lifts Stock"). Through the acquisition, Unilever added personal care brands such as Sanex, Radox, and Duschdas to its product portfolio.

Unilever’s ability to adapt its product lines to match consumer trends has cultivated an expansion of its skin care brands into multiple consumer segments. Recent launches such as Dove pro-age range, Dove summer glow self-tanning and Dove for men, for example, should help Unilever establish its position in nascent consumer segments.

Trefis Community Forecast

The Trefis community forecasts that Unilever’s skin care market share will increase from roughly 26% in 2010 to nearly 31% by the end of our forecast period, compared to the baseline Trefis estimate of a more moderate increase towards 28% during the same period. The Trefis community forecast implies a slight upside beyond our $37.89 price estimate, which already stands well beyond the current market price for Unilever stock.

To see the impact of various skin care market share scenarios on Unilever Group’s stock value, drag the trend line in the modifiable chart above.

Disclosure: No position