On Thursday, JPMorgan made a notable adjustment to its stance on Nestle SA (SIX:NESN) shares, downgrading the stock from Overweight to Neutral. The firm also revised its price target to CHF 105.00 from the previous CHF 115.00. The decision comes after Nestle faced several challenging quarters, prompting the firm to adopt a more cautious perspective on the company's fiscal year 2024 outlook.
JPMorgan's analysis suggests that Nestle's like-for-like sales growth (LFL) is projected to be around 3.1%, which falls below the company's own guidance of approximately 4%. Additionally, the firm anticipates that Nestle's profit margins are likely to be pressured by increased cost inflation and necessary reinvestments back into the business.
The firm also reduced its earnings per share estimate for 2025 by 1.5%, positioning its forecast 3% below the consensus. This leads to an expectation of a 5.5% growth in earnings per share, which is at the lower end of the management's projected range of 6-10% growth in constant currency EPS.
Despite acknowledging that Nestle management has potential strategies to stimulate growth, such as strategic reviews of assets in Frozen Foods and Waters (NYSE:WAT) or share buyback programs through asset sales or leveraging its L'Oréal (EPA:OREP) stake, JPMorgan believes that the company's value creation and potential for a stock re-rating will hinge on its organic performance. The firm's revised outlook places Nestle's organic growth at a level that is in line with or at the lower end of its large European Staples peers.
In light of these factors, JPMorgan has adjusted its December 2025 target price for Nestle downward, even as it recognizes that the stock's de-rating to 16 times its projected 2025 earnings, excluding L'Oréal, presents an attractive valuation relative to its peers. The firm also notes that macroeconomic headwinds could reignite investor interest in Nestle.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.