(Bloomberg) -- Nestle SA analysts are cutting their recommendations on the stock in droves on worries that the consumer company will struggle to drive profit growth, leaving it with most negative consensus rating in four years.
Deutsche Bank AG, UBS Group AG and Berenberg all lowered their ratings this week. Analysts at UBS posed the question “What did we get wrong?” in a report explaining that Nestle faces weak sales growth of Nespresso and a slowdown in its pet care business.
The stock slipped 1.3 per cent in Zurich on Friday and was trading near the lowest since March 2020. Its consensus rating — a proxy for the ratio of buy, hold and sell recommendations — now sits at 3.8, below Danone SA, Mondelez International Inc. and PepsiCo Inc., according to data compiled by Bloomberg.
Nestle’s model is “looking increasingly aspirational rather than a realistic objective,” wrote Guillaume Delmas and Kate Rusanova at UBS.
Consumers trading down to cheaper products are putting the squeeze on Nestle, which makes Kit Kat bars, Nescafe and infant formula. The company reported this week that revenue rose 2.1 per cent in the first half of the year, missing the 2.5 per cent expected by analysts.
The Swiss company now expects sales to grow at least 3%, lower than the roughly 4 per cent previously targeted. Faced with lower growth, Nestle may face pressure to cut costs more aggressively and consider whether acquisitions or disposals are needed to drive profitability.
At Berenberg, analysts downgraded the stock to hold. The company lacks a catalyst to bounce back from the miss on sales growth, wrote Fulvio Cazzol. In the view of Deutsche Bank analysts, Nestle shares no longer have a compelling risk-reward case.
The stock now has 14 buy-equivalent recommendations, 12 holds and two sells among analysts tracked by Bloomberg.
--With assistance from Lisa Pham and Allegra Catelli.
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