7
Nestlé S.A. (NESN.SW)
- Equity
- Switzerland
- Consumer Cyclical
RISK
RETURN
Key risk factors
Negligible price volatility
Strong & resilient to price shocks
Low default risk
Key return factors
Very strong margins and returns
Overvalued vs peers
Decent dividends
Company profileNestlé S.A., together with its subsidiaries, operates as a food and beverage company. The company operates through Zone Europe, Middle East and North Africa; Zone Americas; and Zone Asia, Oceania and sub-Saharan Africa segments. It offers baby foods under the Cerelac, Gerber, Nido, and NaturNes brands; bottled water under the Nestlé Pure Life, Perrier, and S.Pellegrino brands; cereals under the Fitness, Nesquik, cheerios, and Lion Cereals brands; and chocolate and confectionery products under the KitKat, Nestle L'atelier, Nestle Toll House, Milkybar, Smarties, Quality Street, Aero, Garoto, Orion, and Cailler brands. The company also provides coffee products under the Nescafé, Nespresso, Nescafé Dolce Gusto, Starbucks Coffee At Home, and Blue Bottle Coffee brands; culinary, chilled, and frozen foods under the Maggi, Hot Pockets, Stouffer's, Thomy, Jacks, TombStone, Herta, Buitoni, DiGiorno, and Lean Cuisine brands; dairy products under the Carnation, Nido, Coffee-Mate, and La Laitière brands; and drinks under the Nesquik, Nestea, Nescafé, and Milo brands. In addition, it offers food service products under the Milo, Nescafé, Maggi, Chef, Nestea, Stouffer's, Chef-Mate, Sjora, Minor's, and Lean Cuisine brand names; healthcare nutrition products under the Boost, Peptamen, Resource, Optifast, and Nutren Junior brands; ice cream products under the Dreyer's, Mövenpick, Häagen-Dazs, Nestlé Ice Cream, and Extrême brands; and pet care products under the Purina, ONE, Alpo, Felix, Pro Plan, Cat Chow, Fancy Feast, Bakers, Friskies, Dog Chow, Beneful, and Gourmet brands. The company was founded in 1866 and is headquartered in Vevey, Switzerland.
Valuation: Overvalued
Multiple
TTM
NTM
P/E
22.00
19.90
PEG
68.70
-
P/B
6.90
5.00
P/S
2.60
2.50
P/FCF
24.70
15.00
EV/EBITDA
15.00
15.40
Based on key historical and expected multiples, the stock is overvalued relative to its peers. In particular, the stock is reasonably priced on P/E, 'expensive' on EV/EBITDA, trading at neutral levels on P/FCF.
Performance: Mixed
Over the last six months, the stock performance has varied, with an increase following a drop. The stock's price trend wasn't definitive when matched against its global counterparts from the same sector and industry (as depicted above). Within the past six months, its performance has trailed this peer group's by 2ppts and its growth accelerated by 5ppts in the past month. This is equally valid for peers from the same country and industry. Given the stock's valuation versus its peers, its total price movement is neither favourable nor unfavourable.
Analyst view: Somewhat favourable
The average target price is 111 and suggests 18% upside potential. Usually, this means a BUY recommendation among investment firms, or a recommendation to increase one's position in this instrument in the next 12 months. The most optimistic analyst has a target price of 123.0. This translates into 31% upside potential in the best case. On the other hand, the most pessimistic analyst has a target price of 86.0. This is equivalent to 8% downside potential in the worst case.
Profitability: Very strong
RoE
Nestlé S.A. reported a return on equity (RoE) of 31.4% in the last 12 months, up from 28.8% in FY23. The market consensus projects an RoE of 34.6% in FY24, again ahead of its peers.
RoA
Another important profitability metric, return on assets (RoA), amounted to 8.9% in the last 12 months, an increase from 8.6% in FY23. The market analysts predict that RoA will be 9.2% in FY24, again stronger than its peers.
RoCE
In the last 12 months, the return on capital employed (RoCE) grew to 12.5%, above the peers. The consensus estimate for FY24 for RoCE is 18.4%, again ahead of the peers.
Net margin
EBITDA margin
Historically, NESN.SW has reported strong net margins compared to its global peers. Specifically, in the last 12 months, this metric equalled 12.1%, a growth from 9.8% in FY22. The company has reported average EBITDA margins compared to its global peers in recent years. EBITDA margin amounted to 20.9% in the last 12 months, up from 20.7% in FY22.
RoIC / WACC = 2.8(strong value creation)
The ratio of return on invested capital (RoIC) to the weighted average cost of capital (WACC) has been 2.8 in the past several years. This ratio implies a strong shareholder value creation. Growth: Average
Revenue
EBITDA
EPS
Free cash flow
NESN.SW reported revenue of CHF 92 998mn in the last 12 months, down 2% from FY22. At the same time, the dynamics of cash flow, as measured by free cash flow (FCF), were drastically different. EPS grew 25% from FY22 to CHF 4.26. Market expects EPS to reach CHF 4.95 in FY24.Revenue has been growing very slowly over the past several years (middle negative), while slow revenue growth and a stable cost base have translated into weak EBITDA growth (negative-to-neutral). Poor revenue growth and insufficient cost control translated into very slow bottom-line growth in recent years (negative-to-neutral). The FCF trend is in line with EBITDA. We emphasize the highly volatile dynamics of FCF and EPS. On the positive side, revenue and EBITDA dynamics is very stable.
Dividends: Decent
Dividend paid
Dividend yield
The company has a track record of regular dividend payments. It has paid dividends in each of the past ten years. Dividend per share (DPS) has grown yearly, and there is an evident trend. In the past 12 months, the dividend yield has been good and slightly above its peers. On average, the company pays dividends annually.
Default risk: Low
The risk of default is low. We note strong positions in its industry, resilient historical revenue growth, robust profitability, solid return on capital, adequate interest coverage, and solid cash flow generation, among the positive credit factors. Among the negative credit factors, we point to an unfavourable capital structure.
Volatility: Negligible
In normal market circumstances, NESN.SW is not volatile. Put differently, without outstanding market volatility or shocking company news, the stock's price will stay within a narrow range. The stock's losses on its worst days (less than 1-5% of the time) will range from very low to negligible.
Stress-test: Negligible
In highly turbulent market conditions, NESN.SW is not volatile. In other words, the stock will fall far less than the index in times of extreme market volatility or shocking company news. Standalone, the worst-day losses (less than 1% of the time) will likely be very low.
Selling difficulty: Low
NESN.SW boasts high trading liquidity. The average private investor can sell his common position in the stock immediately. Liquidity is usually very stable and is average on the days with the lowest activity. The trading volume mostly stays the same even under highly turbulent market conditions.
Country risk: Very low
The institutional, legal, and compliance risks associated with the company's country are minimal. In combination with stringent business standards, shareholder rights are very highly protected.
Other risks: Negligible
No other major risks have been identified.