On Tuesday, Deutsche Bank adjusted its financial outlook on Nestle SA (SIX:NESN:SW) (OTC: NSRGY (OTC:NSRGY)) shares, reducing the price target from CHF110.00 to CHF106.00, while still recommending a Buy rating for the stock. The revision comes as the bank updates its forecasts in anticipation of the company's first-half results due on July 25th.
The bank's analyst has revised the full-year 2024 like-for-like growth estimate for Nestle down from 4.0% to 3.6%, with the operating margin prediction remaining steady at 17.4%.
This includes an expected 10 basis points increase overall, with a flat first half and a 20 basis points rise in the second half of the year. Additionally, the real internal growth (RIG) forecast for the fiscal year has been slightly increased from 1.2% to 1.3%.
However, the anticipated contribution from price increases has been lowered to 2.3%, a decrease from the previous 2.8% estimate. For the second quarter, the analyst projects a like-for-like growth of 3.5%, an improvement from the 1.4% seen in the first quarter. This estimate is based on a RIG of 1.2% and a price increase of 2.3%.
The revised forecasts also account for the impact of foreign exchange rates and interest, which are expected to reduce the earnings per share (EPS) for the fiscal year 2024 by approximately 2.9% and for the fiscal year 2025 by 4.3%.
The foreign exchange rates are estimated to contribute around 1% to the downgrade, with interest rates accounting for about 2%. Despite these adjustments, the bank maintains its positive stance on Nestle's stock with a continued Buy rating.
In other recent news, Nestle SA has witnessed a series of significant developments. Morgan Stanley has downgraded Nestle's rating from Overweight to Equalweight due to growth concerns, setting a new price target at CHF97.00. The firm's analysis suggests a more conservative margin expansion and less compelling free cash flow perspective for Nestle.
On the other hand, Nestle Health Science has acquired the rights to Vowst, a pill-based treatment for Clostridioides difficile infections, from Seres Therapeutics (NASDAQ:MCRB). This acquisition aligns with Nestle's focus on gastrointestinal diseases and has reported net sales of $10.1 million in Q1 2024.
Furthermore, JPMorgan has downgraded Nestle's stock from Overweight to Neutral, citing challenging quarters and a cautious outlook for FY 2024. The firm expects Nestle's like-for-like sales growth to be around 3.1%, falling below the company's guidance.
Meanwhile, Jefferies has maintained a Hold rating on Nestle while increasing the price target to CHF86.00. The firm attributes Nestle's first-quarter real internal growth contraction to one-time factors.
Finally, Nestle has reported a modest organic sales growth of 1.4% in Q1 2024, with expectations of a rebound in sales from Q2 onwards. These are among the recent developments involving Nestle.
InvestingPro Insights
As Nestle SA (NESN:SW) (OTC: NSRGY) braces for its first-half results expected on July 25th, recent data from InvestingPro shows a company with a strong dividend history and a robust position in the market. Notably, Nestle has raised its dividend for 33 consecutive years, exemplifying its commitment to shareholder returns. In addition, the company is trading at a low P/E ratio relative to near-term earnings growth, suggesting that it may be undervalued given its growth prospects.
InvestingPro data highlights a P/E ratio of 20.01 for the last twelve months as of Q4 2023, with a PEG ratio suggesting a balance between the share price and earnings growth. Moreover, despite recent revenue challenges, with a slight decrease of 1.51% in revenue growth over the last twelve months, Nestle maintains a robust gross profit margin of 46.09%, underlining its efficiency in generating profit from its revenues.
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