Nestlé (NSRGF) Shares Decline as BofA Cuts Rating on Pet Food Market Share Losses

TLDR

Table of Contents

Bank of America lowered Nestlé’s rating from Buy to Neutral and reduced price target to CHF 89 from CHF 94
Shares declined 1.8% in Swiss trading after the downgrade announcement
The company’s North America Petcare division (about 13% of total sales) is experiencing market share declines in cat and dog food segments
Coffee prices have climbed 15% while cocoa surged nearly 70% since April, undermining anticipated cost benefits
First-half earnings showed net profit plummeting ~31% primarily from impairment charges

Shares of Nestlé tumbled 1.8% in Swiss markets Monday following Bank of America Securities’ decision to downgrade the stock from Buy to Neutral while trimming the price target to CHF 89 from the previous CHF 94.

Nestlé S.A., NSRGF

At the time of the rating change, the stock was hovering near CHF 79.23.

The timing of this downgrade comes shortly after Nestlé’s July 23 half-year earnings report revealed a significant 31% decline in net profit, primarily attributed to impairment charges.

BofA’s research team, headed by Nicolas Ceron, identified the North America Petcare business as the primary concern. This division represents approximately 13% of Nestlé’s consolidated sales — making it the company’s largest single category-region segment.

According to the bank’s analysis, Nestlé is experiencing market share erosion across both feline and canine food products. The challenges in dog food are characterized as structural, fueled by shifting consumer preferences toward fresh and premium product formats.

Today, every significant Petcare competitor has introduced fresh food offerings — with one notable exception: Nestlé. Following Colgate’s recent market entry, Purina remains the sole major brand lacking a fresh product line.

Fresh pet food currently generates all of the category’s growth, even though it represents merely 10% of total market volume. This presents a strategic gap that Nestlé cannot afford to overlook.

Margin Pressure Mounts

Addressing this competitive gap will require substantial capital. BofA projects that accelerating Petcare volume growth from the current 2.5% to a 3–4% range would demand significant investment in a segment already burdened with considerably higher supply-chain expenses.

Freshpet, the leading U.S. refrigerated pet food company, operates with profit margins 1,000 basis points below those of Nestlé Petcare — illustrating the financial challenges inherent in the fresh food category.

Compounding these issues, two critical commodity costs are moving unfavorably. Coffee prices have risen 15%, while cocoa has skyrocketed nearly 70% since BofA resumed coverage in April.

Consequently, the gross margin improvement BofA had anticipated from declining input costs has contracted to approximately 240 basis points for 2026–27, down from roughly 370 basis points projected in April.

The bank reduced its 2027 operating margin projection by 20 basis points and lowered its 2027–28 earnings per share estimates by 1% and 2% respectively.

Sector-Wide Dog Food Weakness

In a concurrent move, BofA also downgraded Freshpet to Neutral, citing widespread deterioration across the dog food category. This parallel action indicates the challenges extend beyond Nestlé alone.

Within the North American market, dog food volume and mix growth currently sits at a negative 0.5%, according to BofA’s calculations.

Nestlé’s current valuation stands at 14.6 times its 2026 EV/EBIT — representing a 3% premium versus European Food/HPC industry peers. BofA believes this valuation “fairly reflects” anticipated EBIT growth extending through 2028.

The broader Swiss Market Index showed no negative macroeconomic signals during the session, confirming that the selloff is company-specific rather than market-driven.

With the S&P 500 advancing 1.0% and the Nasdaq climbing 1.6% on the same trading day, Nestlé’s decline clearly represented isolated, stock-specific pressure.

BofA’s updated price target maintains an unchanged 3.9% WACC but incorporates a reduced long-term growth rate of -1.0%, acknowledging “lower growth potential in NA Petcare.”

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