Nestlé's stock dipped 1.8% in Switzerland on Monday after Bank of America Securities downgraded the Swiss food giant from Buy to Neutral, lowering its price target from CHF 94 to CHF 89. At the time, shares traded near CHF 79.23.
The downgrade comes shortly after Nestlé's July 23 release of its first-half financials, which revealed a roughly 31% decline in net profit, largely due to impairment charges. Bank of America's analysts, led by Nicolas Ceron, highlighted the North America Petcare division as a key concern. This segment accounts for about 13% of Nestlé's total sales and is its largest single category-region combination.
Pressure Mounts in Petcare and Raw Materials
According to Bank of America, Nestlé is losing ground in both cat and dog food markets. The drop in dog food sales appears structural, influenced by shifting consumer preferences towards fresh and premium products. Unlike most rivals, Nestlé lacks a fresh pet food offering a category now fueling all petcare growth despite making up only 10% of the market. This gap puts Nestlé at a disadvantage, but closing it would require significant investment amid higher supply-chain costs.
Freshpet, a U.S. leader in refrigerated pet food, runs with margins about 10 percentage points lower than Nestlé Petcare, illustrating the financial challenge of entering this space. also Nestlé faces rising input costs: cocoa prices have surged nearly 70% and coffee prices are up 15% since April. These increases have reduced the expected gross margin gains for 2026 27 from 370 basis points to around 240.
Bank of America consequently trimmed its operating margin forecast for 2027 by 20 basis points and cut earnings-per-share estimates for 2027 and 2028 by 1% and 2%. The downgrades reflect a broader trend, as the bank also lowered Freshpet's rating to Neutral, signaling wider struggles across the dog food category in North America where volume and mix growth are currently negative.
Nestlé’s valuation now trades at a 3% premium over European food peers on a 2026 EV/EBIT basis, aligning with expected earnings growth through 2028. The Swiss Market Index showed no negative macro signals that day, indicating the sell-off was company-specific.
