Nestle stock rating cut to neutral by BNP Paribas Exane

On Tuesday, BNP Paribas (OTC:BNPQY) Exane analyst Jeff Stent downgraded shares of Nestle SA (SIX:NESN), a $271 billion market cap food products giant, from Outperform to Neutral, adjusting the price target to CHF90.00 from the previous CHF98.00. The revision follows a remarkable year-to-date return of 28.27%, according to InvestingPro data, and a re-evaluation of the company’s earnings potential.

Stent noted that despite Nestle (NSE:NEST)’s tendency to fare well in risk-averse market environments, with a conservative beta of 0.42, the recent significant re-rating of the company’s price-to-earnings ratio to 20.5x, combined with a high price-to-book multiple of 6.09x, has led to difficulties in justifying further material re-rating. This reassessment of Nestle’s valuation is reflected in the lowered price target. Based on InvestingPro’s Fair Value analysis, the stock appears fairly valued at current levels.

The downgrade comes after considering Nestle’s current share price performance in combination with revised earnings expectations. Stent mentioned that while Nestle has traditionally been a resilient performer, the valuation adjustments and current market conditions have prompted a more conservative outlook on the stock’s potential.

The analyst’s comments highlighted the recalibration of Nestle’s expected earnings, which played a critical role in the revised stock rating and price target. Stent’s statement emphasized that there is a relative price for everything, and the adjustment in the target price from CHF98 to CHF90 mirrors the updated earnings forecast.

The change in rating from Outperform to Neutral by BNP Paribas Exane suggests a shift in expectation for Nestle’s stock performance. While the company may continue to demonstrate stability, with a strong 46.94% gross profit margin and a 29-year track record of dividend increases, the analyst’s revisions indicate a more balanced view of the stock’s future growth prospects. Investors looking for deeper insights can access comprehensive analysis and additional ProTips through InvestingPro’s detailed research report, with the next earnings announcement scheduled for April 24, 2025.

In other recent news, Nestle has been the focus of analyst assessments and market speculation. Jefferies raised its price target for Nestle to CHF75.00 from CHF67.00 but maintained an Underperform rating, highlighting concerns about potential challenges in the U.S. market that could impact the company’s growth ambitions. The firm pointed out that an unimpressive start to fiscal year 2025 might lead to questions about Nestle’s ability to meet its margin expectations, with potential downward adjustments to margin forecasts if early performance does not meet expectations. On a similar note, JPMorgan reiterated a Neutral rating with a price target of CHF85.00, citing a significant reduction in consensus earnings per share (EPS) expectations and a lack of compelling risk/reward scenarios. The firm expressed concerns over achieving real internal growth (RIG) and highlighted risks to earnings due to margin pressures and inflation in the cost of goods sold. JPMorgan forecasts a modest 0.4% RIG for 2025, significantly lower than the consensus, and pointed out potential downside risks to EPS if high COGS inflation persists. Despite these concerns, the valuation of Nestle remains justified according to JPMorgan, given the current market conditions and the company’s projected financial metrics.

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