Nestlé fails again on the "Nestlé Model"

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Nestlé fails again on the "Nestlé Model"

Nestlé's so called “Nestlé model" sets an annual organic growth target of 5-6 %, while improving the trading operating profit margin, the earnings per share and the capital efficiency. Today the CEO of Nestlé, Paul Burcke, announced that after 2013 and 2014 his company will again not achieve their own goals. He cut the 2015 organic sales growth forecast, which excludes acquisitions, disposals and currency effects, from 5% to only 4.5% for 2015. This is partly due to the so-called “Maggi scandal” in India that caused the first quarterly loss in that region since many years. Although recent studies have demonstrated that Maggi noodles do not contain an increased amount of lead, the reintroduction of Maggi products is being delayed because of regulatory hurdles. The Chinese crisis is also reflecting negatively on Nestlé, as the economic situation is recovering "slower than expected". Another problem might arise from the business area "Nestlé Health Science". Although the potential sales value in that sector is estimated at 10 billion USD, Nestlé had recently changed its discount policy in the US which weighs negatively on the results.

As mentioned in our article "The SMI and the Big Three", the revised growth forecasts had not only a negative effect on Nestlé’s stocks which opened at 73.15 CHF, more than 3% lower than the previous days close, but also significantly impacted the SMI which opened with a price gap as well. As long as the Swiss franc stays strong and the Euro relatively weak Nestlé’s rivals Danone and Unilever should benefit from this situation and will put more pressure on Nestlé. We prefer to put Nestlé on hold with a price target of 77 CHF.

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