Nestle ADR (NSRGY, 131.19): “Nestling or Fully Grown?”
By: Jake Bernarde, AIM Student at
Marquette University
Summary
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Nestle
ADR (OTC:NSRGY) is a
multinational food and beverage company that operates through the following
segments: powdered and liquid beverages, pet care, nutrition and health
science, prepared dishes and cooking aids, milk products and ice cream,
confectionery, and water.
·
In their
recovery from the pandemic and through strong portfolio choices, Nestle will be
able to sustain organic growth across most geographies and segments.
·
Despite the
volatility of raw material prices and sensitivity to foreign exchange rates,
Nestle has maintained its operating margin.
·
Nestle’s
partnership with Starbucks contributed to growth in the powdered and liquid
beverage segment with sales growing 15.5% in the first 9 months of 2021.
Key Points:
Nestle continues to make
progress on growth in its nutrition and health science segment with the acquisition
of The Bountiful Company in July of 2021, which provides health and wellness
vitamins and supplements to its customers. Additionally, on July 1, 2021, Nestle
partnered with Seres Therapeutics to bring an investigative oral microbiome therapeutics,
which refers to the microorganisms located in the human oral cavity, to markets
across the United States and Canada. The microbiome therapeutic would be the
first of its kind to be approved by the FDA.
Key competitors of
Nestle include Unilever, Tyson Foods, and PepsiCo. With shopping trends
returning to somewhat normal from pandemic lows, competition is fierce as the
industry’s competitors realign their business segments. Nestle has an edge over
its rivals with larger margins, a diversified portfolio of products, a strong
reputation, and the presence of opportunities to expand into growing markets, particularly
in healthier foods and drinks.
Nestle’s water sales,
which represent 7.8% of its total sales, have been under pressure in the past
year due to consumers shifting toward eco-friendly options over single-use
plastic bottles. The company has addressed this concern by investing in premium
water products and brands internationally. Also, Nestle began an initiative to
create a positive impact on the environment with the investment of CHF 120
million into conservation projects around the world. From 2025 onward, the company
is committed to engaging in the conservation of water sources and the transition
away from certain single-use plastics.
What has the stock done lately?
Since its low in March of 2021, Nestle has risen 25.54% to 52-week high. In
the past month, Nestle tested new monthly lows before surging to new highs,
trading up 8.51% in the past month to date. Shares are currently trading just
below Nestle’s 52-week high of $131.68.
Past Year Performance:
Nestle underperformed the benchmark in the beginning of the year, but
shares are up 10.61% YTD. Total sales have increased by 2.2% since the
beginning of the year and the operating margin has remained level with the 5-year
average of 17%. While Nestle shares skewed away from the benchmark following
the pandemic, the stock has outperformed its competitors over the past year and
is currently outperforming the benchmark.
Since its addition to the International AIM Equity Fund in April 2020 at
$112.33, Nestle has made multiple impactful acquisitions and partnerships that
have allowed the firm to expand into growing markets and leverage collaborative
opportunities. Nestle has generated consistent growth over the past 12 months
and has surpassed its initial price target of $128.94. Additionally, Nestle’s ability to expand its
premium brands, and produce higher margins has put the firm in a position to
create greater value for its shareholders. It is recommended that we hold our
position in Nestle.
