Jefferies Downgrades Nestlé to ‘Sell’ Amid Margin Concerns
Nestlé, the world’s largest food and beverage company, has received a ‘Sell’ rating from Jefferies, citing concerns about its long-term margin outlook. The downgrade comes as the investment bank forecasts a challenging operating environment for the Swiss FMCG giant despite recent cost-cutting efforts and portfolio changes.
According to Jefferies analysts, Nestlé’s current valuation does not reflect what they consider a “relatively undifferentiated growth profile.” The bank raised serious doubts about the company’s ability to sustainably expand its margins while keeping pace with competitive forces and evolving consumer demands.
Margin Pressures Under Scrutiny
Jefferies projects that Nestlé’s operating margins will hover around 17.5% to 18.5% over the next few years, sharply contrasting with the company’s long-term target of 18% to 21%. This margin compression is a key driver behind the downgrade, with analysts pointing to limited pricing power and heightened cost inflation across categories including dairy, coffee, and pet care.
Despite multiple efficiency programs and portfolio reshaping—including the divestment of non-core businesses—Nestlé’s earnings growth is expected to trail behind sector peers. Jefferies emphasized that these efforts have not yielded sufficient momentum to justify its premium valuation.
Portfolio Strategy and Growth Trade-Offs
While Nestlé has increased investments in high-growth segments such as health science and pet care, Jefferies argues that the low growth trajectory in core food and beverage units is weighing down overall performance. Analysts noted that keeping a wide portfolio may be limiting the company’s agility in reallocating resources to outperforming categories.
The report also expressed caution over Nestlé’s slower-than-expected recovery in key markets, particularly in North America, and flagged the challenging competitive landscape in packaged food as an ongoing headwind.
With the downgrade, Jefferies has adjusted its price target for Nestlé’s U.S.-listed ADRs to $98, suggesting limited upside potential from current levels. For FMCG stakeholders, the report serves as a signal to closely monitor how major multinationals are adjusting to inflationary pressures, shifting consumer preferences, and margin erosion in mature markets.