Nestle stock: Is Maggi-maker’s revenue jump high enough to offset margin pressure?

“We factor in EBIDTA margin decline of 170 bps in CY22 and a gradual recovery of 90 bps over the coming couple of years. We estimate an 11.2% PAT CAGR over CY21-24. We expect slow returns given near-term margin pressure and rich valuations of 66.1x CY23 EPS,” domestic brokerage Prabhudas Lilladher said.

It has an accumulate rating on the stock with a target price of Rs 20,111.

Management commentary points to early signs of softening in edible oil and packaging material prices even as fresh milk, fuels, grains, and green coffee costs remain firm.

“Nevertheless, we believe gross margin may have bottomed out in 3QCY22 and a recovery led by lower input costs and better realizations is imminent in the coming quarters,”

‘s analyst Krishnan Sambamoorthy said.

Valuing the stock at 55x Sep’24 EPS, the brokerage has a target price of Rs 18,700 on Nestle, signalling a downside potential of about 6.5% from the current market price. “We reiterate our Neutral stance on fair valuations,” Motilal said, adding that the long-term narratives for revenue and earnings growth are highly attractive.

is impressed by how is beating peers in its revenue growth trajectory. “We believe the Street will again appreciate the volume-based outperformance that Nestle is witnessing. Maintain ADD with a revised DCF-based TP of Rs21,000 (from Rs20,500),” the brokerage said.

Kotak Institutional Equities opined that Nestle’s strong revenue growth compensates for further gross margin compression. “We raise revenue forecasts, trim margin forecasts and broadly maintain estimates. We roll over and revise DCF-based FV to Rs20,500 (from Rs19,750); implies 57X December 2024E PE,” it said.

Sharekhan is among the most bullish on Nestle with a target price going up to Rs 23,500.

“Nestle’s strong positioning in the domestic food market, innovative product portfolio and improving out-of-home consumption with a thrust on improving penetration in key markets is helping it to deliver consistent double-digit revenue growth for the past few quarters. This along with a cheery dividend payout, makes it a top pick in the consumer staples space,” it said.

The stock has underperformed the broader indices and is currently trading at 61.8x and 52.1x its CY2023E and CY2024E earnings. The Nifty stock has given a return of over 176% in the last five years.

Nestle shares were trading 1.18% higher at Rs 19,887.85 on BSE on Thursday.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)