Feed your Portfolio: Digging into Nestlé

Ticker: NSRGY
Sector: Consumer Defensive
Industry: Packaged Food
Headquartered: Switzerland
Moat: Wide: Scale, Brand, Cost Advantages

Action at date of this post

Strong Buy as of 04.26.2024
The price and value intersection points to buying as much as the full amount you intend on investing or somewhere in the range of 50-100% of your intended position. Then look for opportunities to complete the position or buy in systematically over time.

Fair Value Analysis

I do a fair value analysis on every stock in two ways. The first is the Discounted Cash Flow (DCF) method which I use for most stocks. I also run the Peter Lynch Fair Value method on stocks as well. I like running both as there are times where one way is more meaningful than the other depending on the stock.

Nestlé Corporate Overview

Nestlé, a global leader in the food and beverage industry, boasts a rich heritage dating back over a century. Renowned for its diverse portfolio of well-loved brands such as Nescafé, KitKat, and Purina, Nestlé caters to a broad spectrum of consumer preferences worldwide. Embracing innovation and consumer-centricity, the company continually adapts to shifting market trends, with a strategic focus on nutrition, health, and wellness. Nestlé’s commitment to sustainable practices, reflected in its Responsible Sourcing Program and ambitious environmental goals, underscores its dedication to corporate social responsibility.

Leveraging its extensive global reach and robust distribution network, Nestlé maintains a strong competitive edge in both developed and emerging markets. Despite occasional challenges such as fluctuating commodity prices and regulatory changes, Nestlé’s steadfast financial performance and prudent risk management strategies position it as a stalwart investment choice to anchor a portfolio of defensive stocks. With a forward-looking approach to growth through strategic acquisitions and investments in research and development, Nestlé remains poised for sustained success in the dynamic landscape of the food and beverage industry.

Nestlé Segment Analysis

Nestlé reports in seven operating segments as follows: Powdered and Liquid Beverages, Water, Milk and Ice Cream Products, Nutrition and Health Services, Prepared Dishes and Cooking Aids, Confectionery, and Petcare.

Nestlé Wide Moat Source

Nestlé maintains wide moat sources across its business. The quality of the brand has allowed the company to become entrenched with retailers. In addition, as the world’s largest food maker, the scale of the company allows for significant cost advantages.

Nestlé Growth Outlook

Nestlé benefited from the pandemic in the sense that many people adopted pets and brewed coffee at home. While the post pandemic world looks different it still left a positive trend change for the company in work from home. Although a very large company, the company is nimble enough to handle competition from smaller upstarts very well. Since CEO, U. Mark Schneider, has been at the helm the company has focused on cost-cutting, active portfolio management and investing in high-growth categories like coffee, pets, and nutrition.

The company’s massive, global distribution network and deep supply chain relationships makes the company one the most impactful platforms to develop brands. The quality of the brands in the high-growth categories are such that it creates astounding margins and pricing power. With a widely diverse portfolio the company is insulated from any significant company wide value destruction.

The company spends ~2% of total sales on R&D which helps keep the company brands fresh and on trend. This kind of investing at the scale of the company helps drive growth and entrench the company further in retailers psyche.

The company maintains significant market share in pet care with its Purina brand (25% of global market share). As well, in the baby food and infant formula business, the company maintains a 40% and 20% market share. Both pet and baby categories have very sticky brand loyalty which allows for stability in both meaningful segments of the company.

The Numbers

As one might expect from a global food maker, revenue growth can vary with economic cycles. The numbers I like to focus on with the company are the consistency in gross profit margin and its ROIC/ROCE. Both profitability and returns on capital provide stability to the company. The balance sheet is sound and current management has made meaningful, positive impact on managing its brand portfolio.

This website and associated newsletter along with its content/links are not financial advice. Nothing in this newsletter is an investment recommendation. All content is created for entertainment, educational, or informational purposes only. My strong buy, accumulate, hold, reduce or sell opinions are exactly that – opinions. Be sure to do your own research for your own particular circumstances or higher a professional advisor.

At the time of writing this post, the author does have a position in NSRGY.