Investing.com -- Morgan Stanley (NYSE:MS) has upgraded its rating on Nestlé to "equal-weight" from "underweight" following the company's recent underperformance and updates at its Capital Markets Day.
The brokerage sets a new price target of CHF 76, revising it down from CHF 80. They said that while risks remain, including slower-than-expected organic sales growth (OSG) and margin pressures, the market seems to have priced in these challenges.
The decision comes after a period where Nestlé's valuation fell below its historical premium relative to the sector, reflecting investor concerns over its mid-term growth prospects.
Morgan Stanley flagged that the company's revised targets—an OSG of more than 4% and an underlying trading operating profit margin of more than 17%—will likely take 18 to 24 months to materialize, creating a cautious outlook for the near term.
Despite these headwinds, analysts noted that management's plans to reinvest in marketing and innovation, combined with portfolio adjustments, are steps in the right direction.
Nestlé’s stock is now trading at 16.9 times its projected 2025 earnings, in line with its European consumer staples peers, which Morgan Stanley sees as a fair valuation.
This marks a departure from its historical premium, previously justified by higher organic growth rates.
However, analysts believe Nestlé’s portfolio has the potential to perform at least in line with its medium-term targets, supported by ongoing investments in key brands and innovation pipelines.
While Morgan Stanley remains cautious on Nestlé's ability to outperform in the short term, the upgrade reflects a recognition of the company's stabilizing valuation and reasonable buyside expectations for the next 12-18 months.