Jefferies downgrades Nestlé, Danone to 'underperform' over growth, margin concerns

Investing.com -- Jefferies has downgraded Nestlé and Danone (EPA:DANO ) to an “underperform” rating in a note dated Wednesday, reflecting growing concerns over their midterm growth and margin prospects. 

Analysts at Jefferies suggest that both companies face substantial challenges as the consumer goods industry transitions to a normalized trading environment following the COVID-19 disruptions and subsequent price inflation of recent years.

Nestlé’s downgrade flags its struggles with sluggish sales growth, particularly in key categories like pet food and coffee, which remain under pressure. 

The company has also faced challenges in adapting to the post-pandemic landscape, with its earlier structural advantages, such as pandemic-driven demand spikes in pet care and prepared dishes, dissipating. 

Jefferies analysts pointed out that Nestlé’s new leadership, installed in late 2024, has adopted a more realistic outlook by revising down midterm guidance. 

This includes an emphasis on reinvesting in brand equity and competitive pricing, though such measures are expected to take time to yield results.

Danone faces a similarly difficult path, with Jefferies noting vulnerabilities in areas that had previously driven growth, such as U.S. coffee creamers and China-focused nutrition and water products. 

Analysts expressed concerns that Danone’s efforts to reshape itself into a more consumer health-oriented business may not fully counteract these pressures. 

Moreover, Jefferies identified a broader trend among food companies of reverting to divestment strategies and margin resets as a way to address organic growth shortfalls, warning that such moves could expose risks tied to stranded costs and tax inefficiencies.

The downgrades come amid a broader recalibration across the consumer goods sector. Jefferies analysts described 2025 as a pivotal year, with the industry expected to emerge from what they termed a “void” period of obscured performance between 2020 and 2024. 

Nestlé and Danone, however, are seen as lagging behind their peers in adapting to the structural and competitive shifts of the new market landscape. 

The analysts suggested that valuations for food companies like Nestlé might need to align more closely with historical norms, potentially leading to further deratings.

Source: Investing.com