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JPMorgan double upgraded Unilever, while cutting Nestle

Investing.com
·2 min read

Investing.com - JPMorgan has turned positive on Unilever (LON:ULVR), after several years of caution, but has taken a more cautious view on Nestle (SIX:NESN) as its earnings growth moderates.

Unilever has instituted several changes over the past 12 months, analysts at JPMorgan said in a note dated May 23, which have soothed the bank’s concerns, including cultural change and corporate governance; market share underperformance through increased investments and execution focus; and portfolio transformation with disposals.

“While these changes should impact over time, our analysis of volume levels shed light on volumes recovery from 2019 base in Europe/Nutrition/Ice cream while our worries of price roll over have not materialized,” the bank said.

This feeds a stronger FY24, and should give credence to Unilever is on the path to turnaround and contribute to the stock re-rating along with positive earnings revision.

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The bank has raised its 2024/25 EPS estimates by 2.5%/6%, and upgraded its investment recommendation all the way to ‘overweight’ from ‘underweight’, with a Dec-25 price target of £51 from £36.

On the flip side, JPMorgan has downgraded its stance on Nestle to ‘neutral’ from ‘overweight’, with the bank’s analysts taking a more cautious view on the Swiss food giant following a difficult set of quarters.

“While management may have tools to re-engineer growth (including strategic reviews of assets in Frozen Foods, Waters (NYSE:WAT) or a SBB via assets/L˖Oréal stake sale), we think value creation and a stock re-rating will be determined by organic delivery, which we now see in line/at the bottom of large EU Staples peers,” JPMorgan said.

The bank has cut its Dec-25 target price to CHF 105 (from CHF 115) on slightly lower EPS revisions even as we concede the stock de-rating at 16x PE 25E ex-L˖Oréal is attractive relative to peers and history, while macro headwinds could also revive interest in Nestle.

At 10:50 ET (14:50 GMT), Unilever stock rose 0.7% to £43.05 in London, while Nestle stock fell 1.7% to CHF 93.48 in Zurich.

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