Nestlé (NSRGF) — The Essentials

Now trading at a price of $120.98, Nestlé has moved 0.9% so far today. In contrast, the S&P 500 index moved -1.1%. Read below for a basic value analysis of Nestlé.

Nestlé shares moved -6.5% over the last 52 weeks, with a high of $134.0 and a low of $102.0. During this time, the stock outperformed the S&P 500 index by 1.2%. As of January 2022, the company's 50-day average price is $119.0. Nestlé S.A., together with its subsidiaries, operates as a food and beverage company. The large-cap Consumer Defensive company has 276,000 full time employees and is based in Vevey, Switzerland. Nestlé has returned a 2.3% dividend yield over the last 12 months.

Exceptional EPS Growth — Obtained Primarily Through Share Buybacks:

2019-12-31 2020-12-31 2021-12-31
Revenue (MM) $92,865 $84,681 $87,470
Revenue Growth n/a -8.81% 3.29%
Gross Margins 49.8% 49.3% 48.0%
Gross Margins Growth n/a -1.0% -2.64%
Operating Margins 17.4% 17.0% 17.4%
Operating Margins Growth n/a -2.3% 2.35%
Earnings Per Share $4.3 $4.29 $6.06
EPS Growth n/a -0.23% 41.26%
Free Cash Flow (MM) $11,639 $10,013 $8,523
FCF Growth n/a -13.97% -14.88%
Capital Expenditures (MM) -$4,211 -$4,364 -$5,341
Net Debt / EBITDA 1.55 0.39 0.17

In our analysis of Nestlé's financials, we noted that the number of shares outstanding is shrinking at a faster rate than its net income is growing. It follows that its earnings per share growth can be attributed primarily to buybacks, as opposed to growing earnings.

Nestlé Is Fairly Priced at Current Levels:

Compared to the Consumer Defensive sector's average of 24.21, Series([], ) has a trailing twelve month P/E ratio of 19.1 and, according to its EPS guidance of 5.14, an expected P/E ratio of 23.5. Nestlé's PEG ratio is 2.2 based on its 8.67% annual average growth rate of historical and projected earnings per share. However, we believe that it is more prudent to calculate the PEG ratio using the broader market's 5-year expected EPS growth rate of 13.05%, because the growth rate implied by Nestlé's past and expected EPS is probably not sustainable. This more prudent approach shows a PEG ratio of 1.46, which implies that the company's shares might in fact be fairly valued.

Nestlé's P/B ratio is 7.4 compared to its sector average of 4.09. The company is likely overvalued in terms of its equity. The company's shares are currently trading 186.1% above their fair value as expressed by Benjamin Graham's formula:

√(22.5 * 3-year average EPS * book value per share) = √(22.5 * 4.88 * 16.288) = $42.29

Nestlé's elevated P/B ratio notwithstanding, the company's strong cash flows, decent earnings multiple, and healthy debt levels factor towards it being fairly valued. Just don't let the impressive stated EPS growth fool you into believing there is a compelling growth story here.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.