Nestle Shares Rise Following Jefferies Upgrade

Nestle shares experienced an uptick on Wednesday following an upgrade from Jefferies, which changed the company’s rating from ‘Underperform’ to ‘Hold’. The price target was also adjusted, increasing to CHF 87 from CHF 86. The brokerage noted that while Nestle has encountered difficulties amid a shifting market landscape, its product portfolio is effectively positioned for growth in the future.

Analysts highlighted that Nestle’s stock has already dropped by 10% year-to-date, indicative of a decline in its valuation. Although the company is targeting a sales growth of 4-6%, analysts predict that the portfolio should achieve around 4% growth in the medium term, surpassing the pre-COVID four-year average of 3%.

In spite of the ongoing challenges, Jefferies emphasized Nestle’s robust standing in key markets, particularly in coffee and consumer health. The brokerage also hinted that a partial divestment of the company’s stake in L’Oréal could further enhance its share price.

The analysts mentioned, “With margin progression expected to stabilize at 17.6% and gradually decrease to 17% in the long term, we establish a price target of CHF 87.”

In the short term, Nestle could benefit from economic stimulus initiatives in the US, such as SNAP vouchers and a rise in demand for pet food; however, the company remains susceptible to widespread economic downturns.

Long-term challenges include potential repercussions from GLP-1 medications on a significant share of its sales. Furthermore, expansion of operating margins is constrained by essential reinvestments, limiting the company’s ability to reduce costs through cuts in advertising and promotional expenditures due to capacity limitations and minimal competitive pressures.