Nestle upgraded at JPMorgan as FY27 is shaping up as a ’vintage year’

JPMorgan upgraded Nestle to Overweight from Neutral, with a raised price target of 100 Swiss francs, citing the Swiss food giant's trajectory toward meeting its medium-term goals in FY27. Analyst Celine Pannuti views FY27 as a "vintage year," forecasting organic growth above 4% and a margin above 17%. This optimism is built on Real Internal Growth (RTG) accelerating toward the critical 2% level, projected to generate roughly 4% organic sales growth and sustain a higher rating.

Pannuti attributes this improvement mainly to a turnaround in the U.S., where she anticipates real internal growth of approximately 1.5%, compared to a negative 0.3% CAGR from 2021 to 2026. Emerging markets are also contributing positively, with better execution leading to share gains, combined with resilient pricing expected to deliver 4.2% like-for-like sales growth in 2027, the company's best level since 2023.

Profitability challenges include cost inflation, but JPMorgan expects this to be less severe for Nestle than its peers, aided by a projected 3% rise in cost of goods sold. Savings of 3 billion Swiss francs aimed for by 2028 will help bring underlying trading operating profit margin back into the 17%-plus range. Nestle's net debt to EBITDA is expected to fall to 2.3 times in 2027, supported by free cash flow returning to 10-11 billion francs and asset disposals, including the sale of its Waters and vitamins, minerals, and supplements units, and an exit from Russia.

Despite these challenges, favorable currency trends only marginally lowered JPMorgan's 2027 earnings-per-share estimate, keeping it 1% above consensus and just 1% higher than the average analyst projection. The bank anticipates adjusted EPS growth to pick up to around 6% in 2027, the strongest since 2022. Nestle, excluding its L'Oréal stake, is currently trading at 15 times projected 2027 earnings, near a 15-year low, which Pannuti views as an opportunity for re-rating.

Within JPMorgan's Overweight-rated large-cap staples coverage, the preference order is Unilever, Nestle, Danone, and AB InBev.