On Wednesday, Nestle SA (SIX:NESN:SW) (OTC: NSRGY (OTC:NSRGY)) stock received an upgraded rating from Morgan Stanley (NYSE:MS), shifting from Underweight to Equalweight, although the firm reduced its price target from CHF 80.00 to CHF 76.00. The adjustment follows a period of underperformance and a recent company strategy meeting held last week.
The Morgan Stanley analyst provided a rationale for the upgrade, noting that while downward revisions to sellside estimates are expected, the investment community is likely already accounting for these anticipated adjustments. These revisions align with Nestle (NS:NEST)'s new operational goals, which include over 4% organic sales growth (OSG) and a trading operating profit (UTOP) margin of over 17%, with an 18-24 month timeline to achieve these targets.
Despite the lack of specific numeric guidance from Nestle for 2025, the analyst has factored in a projected OSG that outpaces the circa 2% forecasted for FY24 and a slightly lower UTOP margin. Consequently, Morgan Stanley has adopted a more cautious stance on Nestle's top-line growth for the coming year.
The firm's margin forecast remains at 16.2%, which has led to a reduction in their earnings per share (EPS) estimates for FY25 and FY26. These estimates are now 1% and 3% below the consensus, respectively. This new valuation reflects a reassessment of Nestle's financial outlook in light of the company's strategic objectives and market expectations.
In other recent news, Redburn-Atlantic adjusted the financial outlook for Nestle SA, reducing the price target from CHF 85.00 to CHF 81.00, maintaining a Neutral stance. This change is based on growth prospects and market positioning, with Nestle expected to achieve a 4% earnings per share (EPS) compound annual growth rate (CAGR) over the next three years. Despite this, RBC Capital maintained its Sector Perform rating for Nestle, following the company's updated guidance indicating a slowdown in organic sales growth and a stable earnings outlook.
In addition, Jefferies held its rating on Nestle's shares amidst the company's recent CEO transition, which has led to market anticipation of potential risks impacting both the third quarter and the full year 2024 outlook. Morgan Stanley downgraded its stock rating for Nestle from Equalweight to Underweight, citing concerns over execution risks and a lack of flexibility in the balance sheet.
In leadership changes, Nestle announced the appointment of Laurent Freixe as the new CEO, succeeding Mark Schneider. These are recent developments that have shaped the current status of Nestle.
InvestingPro Insights
Recent InvestingPro data provides additional context to Morgan Stanley's upgrade of Nestle SA. Despite the company's stock trading near its 52-week low, with a significant 19.97% price decline over the last three months, Nestle maintains a robust market capitalization of $222.15 billion. The company's P/E ratio of 17.82 and adjusted P/E ratio of 15.74 for the last twelve months as of Q2 2024 suggest a relatively reasonable valuation, especially considering its industry position.
InvestingPro Tips highlight Nestle's strong dividend history, having raised its dividend for 28 consecutive years and maintained payments for 33 years. This demonstrates the company's financial stability and commitment to shareholder returns, which may be reassuring to investors despite recent market challenges.
The company's revenue of $102.53 billion over the last twelve months, coupled with a healthy gross profit margin of 46.86%, underscores Nestle's significant market presence and operational efficiency. These figures align with Morgan Stanley's focus on Nestle's organic sales growth and profit margin targets.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips that could provide deeper insights into Nestle's financial health and market position.
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