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Nestlé stock is not cheap, but investors are more concerned about yield than valuation

nestle

Nestlé slightly beat estimates on EPS and margin, but showed the slowest organic sales growth since 2009. The latter might weight most on the stock today, as the decelerating growth has been the point of concern over the past years, and the Swiss giant is not yet showing signs it can reverse this trend.

Extremely low food prices have persisted over the past three quarters which weighted on sales, but food deflationary cycles on average do not last over 8 months, hence we can expect a pick in the second half of the year. Nestlé management seems to be of this opinion as it maintained its year end guidance of 4.2% growth, same as in 2015.
 
Nestlé trades at the higher end of long term valuation range, however in the current extreme low-rate and low risk appetite environment, investors are more concerned about securing yield than valuation. We have seen mega caps, defensive and dividend paying investments outperform since the beginning of the year, and this should persist for the rest of the year. Any weakness resulting from this quarterly earnings should be short lived.
 
Swisscom, in line
Nothing really steps out from this earnings release, but the company seems on track to reach its year-end target. Although partly offset by its Fastweb business, challenges to retain its dominant position in Switzerland remain, but that is mostly priced in as there are more Sell recommendations than Buys on the stock.
 
The Swisscom stock will continue to benefit from a ready-made demand for its hefty dividend yield consistently above 4%. A precious return in a world of “yield starvation”.

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