Investing.com – Jeffries downgrades Nestlé and… Danone (EPA:) with an “underperform” rating in a review dated Wednesday, reflecting growing concerns about its medium-term growth and profitability prospects.
Jefferies analysts suggest both companies face significant challenges as the consumer goods industry transitions to a normalized trading environment following the disruptions caused by COVID-19 and subsequent price inflation in recent years.
Nestlé’s downgrade highlights problems with sluggish sales growth, especially in key categories such as pet food and coffee, which remain under pressure.
The company has also faced challenges adapting to a post-pandemic environment as its previous structural advantages, such as a pandemic-driven surge in demand for pet care products and prepared meals, have faded.
Jefferies analysts noted that Nestlé’s new management, which took over at the end of 2024, has adopted a more realistic outlook, revising its medium-term forecasts downwards.
This includes a focus on reinvesting in brand equity and competitive pricing, although such measures are expected to take time to bear fruit.
Danone faces a similarly tough road ahead, with Jeffries noting vulnerabilities in areas that previously drove growth, such as US coffee creamers and China-focused food and water products.
Analysts have expressed concern that Danone’s efforts to transform itself into a business more focused on consumer health may not fully counteract those pressures.
Moreover, Jefferies identified a broader trend among food companies to return to divestment strategies and zero out margins as a way to address organic growth shortfalls, warning that such moves could expose them to the risk of wasted costs and tax inefficiencies.
The downgrade comes amid a broader recalibration in the consumer staples sector. Jefferies analysts called 2025 a turning point, with the industry expected to emerge from what they called a “blank” period of uncertain results between 2020 and 2024.
However, Nestlé and Danone are considered to be lagging behind their competitors in adapting to structural and competitive changes in the new market landscape.
Analysts have suggested that the valuations of food companies such as Nestlé may have to be more closely aligned with historical norms, potentially leading to further downgrades.