Investing.com -- Nestlé (SIX:NESN) has been downgraded by RBC Capital Markets to a “sector perform” rating from “outperform,” with the brokerage citing the stock’s recent price appreciation as the primary factor behind the revision, in a note dated Friday.
While RBC maintains confidence in Nestlé’s long-term competitive position and management’s strategy, the stock has now neared its unchanged price target of CHF 93, limiting further upside potential.
The downgrade comes amid an unsteady period for the consumer staples sector, which has seen increased volatility.
RBC has recently adjusted ratings on several companies, including upgrades for Heineken (AS:HEIN), Carlsberg (CSE:CARLb), and L’Oréal (EPA:OREP).
In this context, the Swiss consumer goods giants’ “outperform” rating was deemed inconsistent given the stock’s current valuation.
Financial forecasts remain largely in line with prior estimates. RBC expects Nestlé’s organic sales growth to reach 3.7% in 2025, up from 2.2% in 2024, with an underlying trading operating profit margin forecasted at 16%, aligning with company guidance.
For the mid-term outlook covering 2026 and 2027, organic sales growth is projected between 3.5% and 3.7%, slightly below Nestlé’s target of at least 4% in stable market conditions. The profit margin for this period is expected to range from 16.7% to 17.2%.
Nestlé’s revenue for 2025 is projected to reach CHF 95.6 billion, rising to CHF 96.8 billion in 2026 and CHF 100.4 billion in 2027.
The adjusted earnings per share estimate for 2025 is CHF 4.39, marking a slight decrease from CHF 4.61 in 2024.
This is expected to improve in the following years, reaching CHF 4.79 in 2026 and CHF 5.25 in 2027.
RBC’s valuation is based on an Adjusted Present Value model, incorporating a cost of equity of 7.5% and a cost of debt of 2.3%.
The brokerage maintains its price target at CHF 93 per share, reflecting a balanced risk-reward scenario.
A potential upside scenario could push the stock to CHF 118 if organic revenue growth surpasses expectations and margins improve, while a downside scenario sees the stock falling to CHF 71 if revenue growth slows and costs rise.
Nestlé remains focused on boosting revenue to strengthen its brands and expand market share. Free cash flow conversion is expected to stay strong, reaching 90% by 2027.
However, RBC warns that rising commodity costs and changing consumer habits could pose risks.