NESN

CHF 79.91 CHF 206B market cap February 21, 2026

Nestle SA NESN BUFFETT / MUNGER / KLARMAN SUMMARY

1 SNAPSHOT

PriceCHF 79.91

Market CapCHF 206B

EVCHF 257B

Net DebtCHF 51.4B

Shares2.57B

2 BUSINESS

World's largest food & beverage company by revenue (CHF 89.5B), operating 2,000+ brands across 188 countries. Core categories: Coffee (Nescafe, Nespresso, Starbucks license), PetCare (Purina, Fancy Feast, Pro Plan), Nutrition (Gerber, NAN, Garden of Life), and Food (Maggi, KitKat, Stouffer's). Currently undergoing transformative portfolio simplification: exiting ice cream (sale to Froneri JV) and waters/premium beverages (divestment by 2027) to concentrate on four core businesses representing ~70% of current sales. 270,000+ employees globally.

Revenue: CHF 89.5B Organic Growth: 3.5%

3 MOAT WIDE

Five moat elements: (1) Brand portfolio -- 30+ brands with CHF 1B+ in sales, including 150+ year heritage brands (Nestle founded 1866); (2) Distribution scale -- presence in 188 countries with unmatched retail relationships; (3) Category leadership -- #1 global position in coffee, pet food, and infant nutrition; (4) R&D investment -- 23 centers, CHF 1.7B annual spend, 5,000+ scientists; (5) Switching costs -- foodservice/B2B contracts, Nespresso capsule ecosystem. HOWEVER: moat is stable-to-narrowing due to private label gains, GLP-1 drug volume impacts, and emerging market local competitors.

4 MANAGEMENT

CEO: Philipp Navratil (since Sep 2025)

AGGRESSIVE shareholder returns: 31 consecutive dividend increases (CHF 3.10 proposed 2025), CHF 22B+ in buybacks over 5 years, BUT funded partly by debt (net debt rose from CHF 31B to CHF 56B peak). New CEO executing portfolio simplification: ice cream exit, waters divestment, Fuel for Growth CHF 2.5B savings by 2027. KEY CONCERN: Three CEOs in 3 years (Schneider departed Aug 2024, Freixe dismissed Sep 2025 for conduct violation). No significant insider ownership alignment.

5 ECONOMICS

16.1% (UTOP) Op Margin

12.7% ROIC

CHF 9.2B FCF

2.85x Debt/EBITDA

6 VALUATION

FCF/ShareCHF 3.56

FCF Yield4.5%

DCF RangeCHF 60 - 82

Base FCF CHF 9.2B growing 3-4% for 5 years, terminal growth 2%, discount rate 8%. L'Oreal 20.1% stake adds ~CHF 19/share at 80% of market value. Owner Earnings normalized at CHF 3.85/share x 15-20x = CHF 58-77 + L'Oreal. Private market value at 10-14x EBITDA = CHF 68-99/share.

7 MUNGER INVERSION -25.7%

Kill Event	Severity	P()	E[Loss]
GLP-1 drugs reduce food consumption 5-10%	-15%	50%	-7.5%
Private label permanently gains 3-5pp share	-10%	55%	-5.5%
CHF appreciation eroding reported earnings	-8%	65%	-5.2%
Fourth CEO departure / governance crisis	-20%	20%	-4.0%
UTOP margin compression below 15%	-10%	35%	-3.5%

Tail Risk: Lollapalooza scenario: GLP-1 adoption reaches 20%+ of adult population simultaneously with private label winning the price war, a fourth CEO departure, and forced L'Oreal stake sale at a discount. This would compress margins below 14%, potentially trigger a dividend cut, and destroy 50%+ of shareholder value. Probability: <5%.

8 KLARMAN LENS

Downside Case

GLP-1 drugs reduce food volumes 5-10%, private label gains 3-5pp share in Europe/NA, emerging market currencies weaken 5-10% per year against CHF. UTOP margin compresses to 14-15%, EPS declines to CHF 3.00. Stock de-rates to 14x = CHF 42. Dividend cut would accelerate decline.

Why Market Wrong

The market may be undervaluing the portfolio simplification catalyst. Concentrating on Coffee + PetCare + Nutrition + Food removes low-margin businesses (Water 9%, Ice Cream subscale) and should lift group UTOP toward 17.5-18.5%. Fuel for Growth savings of CHF 1.0B/yr by 2027 are running ahead of schedule. L'Oreal stake provides CHF 50B of optionality. At CHF 60-65, the risk-reward would be compelling.

Why Market Right

The bears are right that: (1) GLP-1 is a genuine structural headwind that could reduce food volumes 5-10% over 10 years; (2) three CEO changes in three years is a red flag for governance; (3) organic growth of 2-3% for a company of this size and maturity may be the new normal, not a trough; (4) the CHF 51.4B debt load limits flexibility; (5) the 88% dividend payout ratio leaves no buffer for error.

Catalysts

(1) Portfolio simplification -- ice cream exit and waters divestment by 2027 lifts UTOP margins 100-200bp; (2) Fuel for Growth delivers CHF 1.0B annual savings; (3) L'Oreal stake partial or full sale raises CHF 25-50B; (4) Organic growth sustained above 4% proves GLP-1 fears overblown; (5) Navratil builds credibility with 12-24 months of consistent execution.

9 VERDICT WAIT

B+ T4 Exposed

Strong BuyCHF 55

BuyCHF 66

SellCHF 117

Nestle is a world-class brand portfolio trading at approximately fair value (CHF 78 IV vs. CHF 79.91 current). The portfolio simplification under CEO Navratil is promising but unproven, and structural headwinds from GLP-1 drugs, private label competition, and CHF appreciation create genuine risk. With 88% dividend payout, 2.85x net debt/EBITDA, and three CEO changes in three years, there is no margin of safety at current prices. WAIT for CHF 55-66 to establish a position with adequate margin of safety. The L'Oreal stake (CHF ~50B) provides significant hidden optionality.

10 MACRO RESILIENCE -47

Significant Headwinds Required MoS: 37%

Monetary

-7

Geopolitical

-2

Technology

Demographic

-22

Climate

-3

Regulatory

-2

Governance

-10

Market

-2

Key Exposures

GLP-1 Revolution -12 Ozempic and semaglutide are chemically rewiring appetite. 14% US adult adoption could reach 30%+ in a decade. Nestle's entire model - selling beloved food habits - faces existential challenge.
Gen Z Consumer Shift -9 Private label is no longer embarrassing, it's smart. Aldi sells chocolate that beats KitKat in blind tests. Brand premium is eroding with younger cohorts.
CEO Governance Crisis -9 Two CEO departures in 12 months (Schneider Aug 2024, Freixe Sept 2025). Not bad luck - symptom of organizational dysfunction. New CEO Navratil untested.

NESN faces severe macro headwinds concentrated in demographic/health category. The GLP-1 revolution (-12 weighted) and Gen Z private label shift (-9) directly attack the company's core value proposition: selling beloved food habits. Combined with governance instability (two CEO departures), total macro score of -47 requires 37% margin of safety vs 25% base. At CHF 77.83 (14% premium to CHF 68 intrinsic value), the stock offers NEGATIVE margin of safety. REDUCE position from 20% to 8-10%.

🧠 ULTRATHINK Deep Philosophical Analysis

NESN - Ultrathink Analysis

The Core Question

We are not asking "will Nestle stock recover?" That is thinking in stock prices. The real question is deeper: In a world where a pill can suppress appetite, where Aldi sells private-label versions of every product at 30% less, where three CEOs have come and gone in three years, and where the Swiss franc grinds relentlessly higher against every currency on earth -- does the 158-year-old art of building beloved food brands still create lasting economic value?

The market sees a company in decline. Revenue has fallen from CHF 94.4 billion to CHF 89.5 billion in three years. Margins are compressing. The stock has lost 40% of its value from the 2021 peak. A new CEO is executing his third strategic overhaul in three years. From the outside, this looks like a company that has lost its way.

But let us apply Munger's inversion: what would it take for Nestle to be worth ZERO? The answer reveals something important. You cannot destroy Nestle. Not in any plausible scenario. Human beings will still drink coffee in fifty years. They will still feed their pets. They will still eat chocolate. They will still buy infant formula. These are not discretionary luxuries -- they are deeply embedded in the daily rituals of billions of people across 188 countries. The question is not survival. The question is growth, and specifically, whether the price we pay today is justified by the growth this company can deliver.

The GLP-1 Meditation

Let us dwell on the GLP-1 question, because it is the most important structural risk this company has faced since its founding. Semaglutide and tirzepatide are doing something that no diet, no public health campaign, no government intervention has ever accomplished: they are making people eat less. Users report 15-25% reduction in caloric intake. The drugs work. They are spreading. And every calorie not consumed is a calorie not purchased from Nestle.

But here is where nuance matters. Nestle is not a monolithic food company. Its portfolio is a constellation of categories with very different exposure to this risk:

Immune to GLP-1: PetCare (21% of revenue, 21.7% UTOP margins). Dogs and cats do not take semaglutide. Pet humanization is a multi-decade trend that shows no signs of reversal. If anything, as people have fewer children and eat less themselves, they may spend even more on their pets. This is Nestle's crown jewel.

Largely immune: Coffee (28% of revenue, the largest growth contributor at 7.3% organic growth). People on GLP-1 drugs still drink coffee. It is a ritual, not a caloric choice. Nespresso's single-serve format may actually benefit -- a carefully crafted espresso is the opposite of mindless snacking.

Moderately exposed: Infant Nutrition (NAN, Gerber). Not affected by GLP-1 but has its own challenges -- the January 2026 cereulide recall is a direct hit to trust in a category where trust is everything.

Fully exposed: Confectionery (KitKat, Smarties), Prepared Dishes (Stouffer's, Hot Pockets), Milk Products. These impulse and convenience categories will see structural volume declines as GLP-1 penetration grows. But they represent perhaps 35% of revenue, not 100%.

The honest assessment: GLP-1 is a 10-15% headwind to the company, not an existential threat. But 10-15% matters enormously when you are trying to grow 4%+ organically.

The Private Label Paradox

Munger would ask: "What is the limiting principle?" For private label, the limiting principle is brand equity in categories where quality perception matters. Nobody buys private-label espresso capsules for their Nespresso machine. Nobody buys store-brand Pro Plan for their diabetic cat. Nobody gives their child a no-name chocolate bar on Halloween.

But in commoditized categories -- basic water, frozen pizza, breakfast cereal -- private label is winning and will continue to win. Aldi and Lidl are not just discount retailers; they are manufacturing excellence companies that have figured out how to make products of comparable quality at 30% lower cost. This is a permanent shift, not a cyclical one.

The portfolio simplification under Navratil is the right strategic response to this reality. By exiting Water (9% UTOP margins -- Perrier and S.Pellegrino are nice brands but the category economics are terrible) and Ice Cream (subscale position), Nestle is concentrating on categories where brand matters most. This is intelligent capital allocation, even if it was forced by circumstance rather than chosen by conviction.

The Owner's Mindset

Would Buffett own this for twenty years? The answer is nuanced. Buffett would love the brand portfolio, the 188-country distribution, the pricing power in Coffee and PetCare. He would appreciate the 31-year dividend streak. He would value the L'Oreal stake as a patient investment in a world-class business.

But Buffett would hate several things. First, the leverage: CHF 51.4 billion in net debt, with dividends plus buybacks routinely exceeding free cash flow. Buffett runs Berkshire with zero net debt. Second, the governance: three CEOs in three years is anathema to Buffett's "back the jockey" philosophy. How can you evaluate management when management changes every twelve months? Third, the growth profile: 2-3% organic growth is essentially GDP growth. For a company trading at 19x earnings, you need above-GDP growth to justify the multiple.

Munger would add: "Show me the incentive, I'll show you the outcome." Nestle's management incentive structure rewards relative total shareholder return and organic growth. Both are good metrics. But the short vesting periods and the revolving-door CEO tenure mean that no management team has been in place long enough to be held accountable for the outcomes of their own strategy. This is a fundamental governance failure.

Risk Inversion

The three paths to permanent capital destruction:

1. The GLP-1 Cascade. If adoption reaches 20%+ of the adult population in Western markets, Nestle's food volumes could decline 3-5% per year for a decade. Combined with private label share gains, this creates a death spiral: lower volumes lead to production deleveraging, which leads to margin compression, which leads to reduced marketing spend, which leads to further share loss. The analogy is the tobacco industry post-1998 -- except tobacco companies had 90%+ margins to absorb volume declines. Nestle has 17%.

2. The Currency Trap. Switzerland's economy is the gold standard of monetary prudence. This is great for Swiss citizens and terrible for Swiss multinationals. Every year, the CHF appreciates 2-3% against the weighted basket of currencies in which Nestle earns. This creates a persistent earnings headwind that no amount of operational excellence can overcome. A CHF-based investor in Nestle has earned approximately -2% annualized over five years including dividends. That is wealth destruction in real terms.

3. The Governance Collapse. A fourth CEO departure would signal that Nestle's board is dysfunctional. The company would enter a permanent governance discount, trading at 12-14x earnings like other "orphan" large-caps where institutional investors have given up on engagement. Combined with the leverage and the GLP-1 overhang, this could push the stock to CHF 40-50.

Valuation Philosophy

At CHF 79.91, Nestle trades at approximately fair value on our analysis. The key question is whether "fair value" is the right price for a company with these specific risks. Klarman would say no. In the presence of genuine structural headwinds (GLP-1, private label, governance), a value investor should demand a 20-30% discount to fair value to compensate for the uncertainty.

The L'Oreal stake is the ace in the hole. CHF 50 billion of L'Oreal shares sit on Nestle's balance sheet, growing at 7-8% annually. This stake alone is worth CHF 19/share. A full monetization would transform Nestle's balance sheet overnight, eliminating the entire CHF 51.4B net debt position. But this is optionality, not certainty. And optionality has value only to an owner with the patience to wait for management to act.

The Patient Investor's Path

The right approach to Nestle is watchful patience. This is not a company to reject permanently -- the brand portfolio is too strong, the categories too durable, the L'Oreal optionality too valuable. But it is also not a company to buy today. The margin of safety is zero. The structural headwinds are real. The governance needs another 12-24 months to stabilize.

The entry point we are waiting for: CHF 55-66. This would represent 14-16x normalized earnings, a 4.7-5.6% dividend yield (assuming the dividend holds), and a 15-30% margin of safety to our intrinsic value estimate. What could bring us there? A market correction. A GLP-1 scare that temporarily depresses food company valuations. A disappointing quarterly result from Navratil. Or simply the passage of time as the Swiss franc continues to grind higher.

When Nestle trades at CHF 60, the risk-reward will be asymmetric. The downside from there -- a genuine worst case -- is perhaps CHF 40 (a further 33%). The upside -- a successful portfolio simplification, margin recovery, and eventual L'Oreal monetization -- is CHF 100+ (a 67% return). That 2:1 reward-to-risk is what Buffett, Munger, and Klarman would demand before committing capital to a company with this many moving parts.

Until then, we wait. There is no penalty for not swinging.

Executive Summary

Investment Thesis (3 Sentences)

Nestle is the world's largest food and beverage company (CHF 89.5B revenue) undergoing a transformative portfolio simplification under new CEO Philipp Navratil, exiting ice cream (Froneri sale) and waters by 2027 to concentrate on four core categories: Coffee, PetCare, Nutrition, and Food. The stock has declined 40% from its 2021 all-time high of CHF 128.90 to CHF 79.91, representing the cheapest valuation in a decade (17x trailing P/E), but organic growth remains anemic at 3.5%, UTOP margins are compressing (16.1%), debt is elevated (CHF 51.4B), and two CEO departures in 12 months signal governance dysfunction. Despite the world-class brand portfolio, there is no margin of safety at current prices -- fair value is approximately CHF 72 -- and patient investors should wait for CHF 60-65 (Strong Buy) or CHF 65-70 (Accumulate) before re-entering.

Key Metrics Dashboard

Metric	2025	2024	2023	Assessment
Revenue (CHF B)	89.5	91.4	93.0	Declining (-3.7% from 2023)
Organic Growth	3.5%	2.2%	7.2%	Recovering but below mid-term target
UTOP (CHF B)	14.4	15.7	16.1	Declining, margin compression
UTOP Margin	16.1%	17.2%	17.3%	120bp compression in 2 years
Net Income (CHF B)	9.0	10.9	11.2	-19% in 2 years
EPS (CHF)	3.51	4.19	4.24	-17% decline in 2 years
FCF (CHF B)	9.2	10.7	10.4	Strong but declining
Net Debt (CHF B)	51.4	56.0	49.6	Elevated, 2.85x EBITDA
Dividend/Share (CHF)	3.10	3.05	3.00	31st consecutive increase
Dividend Yield	3.9%	-	-	Attractive but payout is 88% of EPS
P/E (Trailing)	22.8x	-	-	On compressed earnings
ROIC	12.7%	14.1%	13.9%	Declining from cost pressure

Decision

	Price (CHF)	P/E (est.)	Margin of Safety
Strong Buy	< 60	< 14x	> 30%
Accumulate	60 - 70	14 - 16x	15 - 30%
Fair Value	72 - 82	17 - 19x	At intrinsic value
Overvalued	> 95	> 22x	Premium territory
Current (CHF 79.91)	79.91	~19x normalized	~2% above estimated IV

RECOMMENDATION: WAIT Position Size: 0% (wait for entry) Catalyst: Portfolio simplification + margin recovery from Fuel for Growth savings

Phase 0: Opportunity Identification (Klarman)

Why Does This Opportunity Exist?

1. Three CEO Departures in 3 Years (Governance Crisis) Mark Schneider departed in August 2024 after 7 years. His replacement Laurent Freixe was dismissed in September 2025 for a code of conduct violation (undisclosed personal relationship). Philipp Navratil, the third CEO in three years, is now executing a major strategic overhaul. This level of management instability rightly spooks institutional investors and creates a persistent governance discount.

2. Organic Growth Collapse from 7.2% to 2.2% (and Partial Recovery to 3.5%) Nestle's organic growth decelerated from a cycle peak of 8.3% in 2022 to just 2.2% in 2024, well below the 4%+ mid-term target. The 2025 recovery to 3.5% is encouraging but remains below historical norms, and the 2026 guidance of 3-4% suggests management itself expects only gradual improvement.

3. GLP-1 Drug Impact on Food Consumption Weight loss drugs (Ozempic, Wegovy, Mounjaro) are the most significant structural threat to packaged food volumes in decades. Users report 6-15% reduction in food consumption, with U.S. adult adoption already at 5-6% and growing. Nestle launched the "Vital Pursuit" product line as a response, but the market is right to demand a discount for this existential category risk.

4. Swiss Franc Appreciation Eroding Returns Nestle earns globally but reports in CHF. Persistent CHF strengthening creates a -5.7% FX headwind in 2025, compressing reported growth. A CHF-based investor sees stagnation where a constant-currency investor sees moderate growth.

5. Debt Load from Aggressive Buybacks Net debt increased from CHF 31.3B (2020) to CHF 56.0B (2024), peaking at 3.3x EBITDA, as management borrowed to fund buybacks. While debt has since declined to CHF 51.4B (2.85x EBITDA), the leverage leaves less room for error.

Assessment: Multiple legitimate reasons for the discount exist. This is NOT a temporary mispricing -- it reflects genuine structural challenges. However, the brand portfolio quality, defensive characteristics, and portfolio simplification catalyst mean the stock COULD become interesting at a lower price.

Phase 1: Risk Analysis (Inversion Thinking)

"All I want to know is where I'm going to die, so I'll never go there." -- Munger

Top 10 Risks

#	Risk	Probability	Impact	Expected Loss
1	GLP-1 drugs reduce food consumption 5-10%	50%	-15% revenue	-7.5%
2	Private label permanently gains 3-5pp share	55%	-10% margins	-5.5%
3	Emerging market FX & CHF appreciation	65%	-8% reported earnings	-5.2%
4	Management instability continues (4th CEO)	20%	-20% confidence	-4.0%
5	Margin compression continues (UTOP < 15%)	35%	-10% earnings	-3.5%
6	China geopolitical boycott risk	25%	-12% revenue	-3.0%
7	Infant formula recall damage (Jan 2026 cereulide event)	40%	-5% brand trust	-2.0%
8	Dividend cut or freeze (88% payout ratio)	15%	-15% share price	-2.3%
9	PetCare growth slowdown (post-COVID normalization)	40%	-5% value	-2.0%
10	Waters/ice cream divestments at poor valuations	30%	-5% NAV	-1.5%

Total Expected Value at Risk: -36.5% (cumulative probability-weighted)

Bear Case Summary (3 Sentences)

GLP-1 drugs reduce packaged food consumption by 5-10% over the next decade, permanently impairing Nestle's volume growth trajectory and making 3%+ organic growth structurally impossible. Private label continues to gain share in Europe and North America as inflation-scarred consumers permanently trade down, while emerging market currencies weaken against the relentless CHF. Three CEO changes in three years have left the company without strategic direction, the infant formula recall damages the trust-based brand moat, and the CHF 51.4B debt load limits financial flexibility to invest through the downturn.

Inversion: How Could This Lose 50%+ Permanently?

GLP-1 adoption reaches 20%+ of adult population -- food volumes decline structurally, pricing power erodes as consumers eat less, Nestle's scale advantage becomes a cost disadvantage, earnings halve over a decade.
Private label wins the value war -- Aldi, Lidl, and Amazon private label reach 40%+ share in key categories, forcing Nestle into a price war that destroys margins permanently.
Management destroys value -- Fourth CEO in 4 years makes a desperate transformative acquisition at the wrong price, adding CHF 20B+ of goodwill that gets impaired.

Pre-Defined Sell Triggers

Organic growth stays below 2% for 3 consecutive years -- signals structural brand decay
UTOP margin falls below 14% -- signals loss of pricing power
Dividend cut or freeze -- signals cash flow distress
Fourth CEO departure within 5 years -- signals unresolvable governance issues
Purina PetCare market share loss exceeds 5pp -- core growth engine damaged

Phase 2: Financial Analysis

6-Year Financial Summary (CHF millions)

Metric	2025	2024	2023	2022	2021	2020
Revenue	89,490	91,354	93,000	94,400	87,088	84,343
Organic Growth	3.5%	2.2%	7.2%	8.3%	7.5%	3.6%
RIG	0.8%	0.8%	-0.3%	0.1%	5.5%	3.2%
Pricing	2.8%	1.5%	7.5%	8.2%	2.0%	0.4%
UTOP	14,390	15,704	16,100	16,100	15,119	14,903
UTOP Margin	16.1%	17.2%	17.3%	17.1%	17.4%	17.7%
TOP	12,700	~13,500	14,500	13,200	12,200	14,309
Net Income	9,033	10,884	11,209	9,270	16,900	12,238
Basic EPS (CHF)	3.51	4.19	4.24	3.42	6.06	4.30
Underlying EPS	4.42	4.77	4.80	4.80	4.42	4.21
FCF	9,154	10,666	10,400	6,600	8,700	10,200
Net Debt	51,400	56,000	49,600	48,200	32,900	31,300
Dividend/Share	3.10	3.05	3.00	2.95	2.80	2.75
ROIC	12.7%	14.1%	13.9%	12.2%	~14%	14.7%
Shares (B)	~2.57	2.57	2.65	2.71	2.79	2.85

ROE Decomposition (DuPont Analysis)

Year	Net Margin	Asset Turnover	Equity Multiplier	ROE
2025	10.1%	~0.64x	~4.0x	~25.8%
2024	11.9%	0.66x	3.87x	30.3%
2023	12.0%	0.74x	3.54x	31.3%
2022	9.8%	0.71x	3.32x	23.1%
2021	19.4%	0.59x	3.05x	34.9%
2020	14.5%	0.55x	2.35x	18.7%

Key Insight: ROE has been highly volatile (18.7% to 34.9%), driven primarily by leverage (equity multiplier rose from 2.35x to ~4.0x as buybacks reduced equity) and volatile net margins (one-off L'Oreal gain in 2021, impairments in 2022). Underlying ROE, adjusting for these, is approximately 20-25% -- still above Buffett's 15% threshold but not as impressive as headline numbers suggest.

Owner Earnings Calculation (Buffett Method)

FY 2025:
Net Income:           CHF 9.03B
+ Depreciation:       CHF 3.4B (estimated)
- Maintenance CapEx:  CHF 3.5B (estimated ~65% of total CapEx)
- WC Changes:         CHF 0.3B (estimated)
= Owner Earnings:     CHF 8.6B

Owner Earnings/Share: CHF 8.6B / 2.57B = CHF 3.35

Normalized Owner Earnings (using 5yr avg NI CHF 10.3B):
= CHF 10.3B + 3.4B - 3.5B - 0.3B = CHF 9.9B
= CHF 3.85/share (normalized)

ROIC vs WACC

Metric	2025	2024	2023	2022
ROIC	12.7%	14.1%	13.9%	12.2%
WACC (est.)	7-8%	7-8%	7-8%	7-8%
Spread	+5-6pp	+6-7pp	+6-7pp	+4-5pp

ROIC exceeds WACC but the spread is narrowing, from ~7pp in 2023-2024 to ~5pp in 2025. Fuel for Growth savings (CHF 1.0B target by 2027) and portfolio simplification should reverse this, but it requires execution.

Valuation Trinity

1. Liquidation Value (Floor)

Asset	Book Value	Discount	Liquidation
Cash	~CHF 7B	100%	CHF 7.0B
Receivables	~CHF 12B	80%	CHF 9.6B
Inventory	~CHF 11B	60%	CHF 6.6B
PP&E	~CHF 30B	40%	CHF 12.0B
Intangibles/Goodwill	~CHF 50B	5%	CHF 2.5B
L'Oreal stake (20.1%)	~CHF 50B	80%	CHF 40.0B
Total			CHF 77.7B
- Total Liabilities			(CHF ~103B)
Net Liquidation			(CHF 25.3B)

Per share: Negative -- BUT the L'Oreal stake is a hidden asset worth ~CHF 50B (20.1% of L'Oreal's ~EUR 240B market cap). If valued at market, liquidation value is approximately CHF 19/share. This is not a net-net.

2. DCF Analysis (Conservative)

Assumptions:

FCF Year 0: CHF 9.2B (2025 actual)
Growth Years 1-3: 3% (margin recovery + organic growth)
Growth Years 4-7: 4% (portfolio simplification benefits)
Growth Years 8-10: 3%
Terminal Growth: 2%
Discount Rate: 8%

Year 1-5 FCF PV:    CHF 39.2B
Year 6-10 FCF PV:   CHF 33.8B
Terminal Value PV:   CHF 107.5B
Enterprise Value:    CHF 180.5B
- Net Debt:          (CHF 51.4B)
+ L'Oreal stake:     CHF 50.0B (at 80% of market value)
Equity Value:        CHF 179.1B
Per Share:           CHF 69.7

Sensitivity:
7% WACC = CHF 82/share
8% WACC = CHF 70/share
9% WACC = CHF 60/share

Conservative DCF: CHF 70/share

3. Private Market Value

Recent F&B M&A multiples: 11-14x EBITDA
Nestle EBITDA (est.): CHF 18B
Implied EV at 12x: CHF 216B
Less Net Debt: CHF 51.4B
Plus L'Oreal (80%): CHF 50B
Equity Value: CHF 214.6B
Per Share: CHF 83/share
At 10x EBITDA (conservative): CHF 68/share
At 14x EBITDA (premium): CHF 99/share

4. Owner Earnings Multiple

Normalized Owner Earnings: CHF 3.85/share
10x Multiple (conservative):  CHF 38.50
15x Multiple (fair):          CHF 57.75
20x Multiple (premium):       CHF 77.00
+ L'Oreal per share (~CHF 19): add to each

Adjusted:
10x: CHF 57.50
15x: CHF 76.75
20x: CHF 96.00

Margin of Safety Calculation

Valuation Method	Value/Share	Current Price	MOS
DCF (Conservative, 8%)	CHF 70	CHF 79.91	-14%
Private Market (12x)	CHF 83	CHF 79.91	+4%
Private Market (10x)	CHF 68	CHF 79.91	-17%
Owner Earnings 15x + L'Oreal	CHF 77	CHF 79.91	-4%
Owner Earnings 20x + L'Oreal	CHF 96	CHF 79.91	+17%

Weighted Intrinsic Value: CHF 78/share (40% DCF, 30% PMV, 30% OE)

Current MOS: -2% (approximately fairly valued, but no margin of safety)

Phase 3: Moat Assessment

Moat Sources

Moat Type	Strength	Evidence	Durability
Brand Portfolio	HIGH	2,000+ brands, 30+ with CHF 1B+ sales, 150yr heritage	15+ years
Distribution Scale	HIGH	Operations in 188 countries, 270,000+ employees	10+ years
Category Leadership	HIGH	#1 global coffee, #1 pet food, #1 infant nutrition	10+ years
R&D/Innovation	MODERATE	23 R&D centers, CHF 1.7B annual R&D spend	5-10 years
Switching Costs (B2B)	MODERATE	Foodservice contracts, private label manufacturing	5 years
Network Effects	LOW-MODERATE	Nespresso ecosystem (capsules), digital platforms	3-5 years

Brand Portfolio Deep Dive

Category	Key Brands	2025 OG	UTOP Margin	Moat Durability
Coffee	Nescafe, Nespresso, Starbucks	7.3%	17.2%	STRONG -- cultural habit
PetCare	Purina, Fancy Feast, Pro Plan	2.2%	21.7%	STRONG -- pet humanization
Confectionery	KitKat, Smarties, Toll House	8.2%	12.7%	MODERATE -- impulse driven
Nutrition/Health	Gerber, NAN, Garden of Life	0.6%	19.7%	MODERATE -- regulatory
Prepared Dishes	Maggi, Stouffer's, Hot Pockets	-0.4%	19.5%	NARROWING -- private label
Water	Perrier, S.Pellegrino	3.9%	9.2%	MODERATE -- to be divested
Milk/Ice Cream	Nestle Ice Cream, Haagen-Dazs	1.3%	23.0%	MODERATE -- to be divested

Moat Erosion Forces

Threat	Severity (1-5)	Timeline	Nestle's Mitigation
GLP-1 reducing food volumes	4	5-15 years	Vital Pursuit line, portion sizes, protein focus
Private label share gain	4	Ongoing	Brand investment (9% of sales by end-2025), premiumization
Emerging market local competitors	3	5 years	Local brand acquisitions, distribution depth
E-commerce/D2C disruption	2	Ongoing	Nespresso D2C, Amazon partnership
ESG/plastic regulations	2	5-10 years	Sustainable packaging investments
Infant formula safety incidents	3	Immediate	Quality systems (Jan 2026 cereulide recall is a setback)

Key Question: Will This Moat Be Wider or Narrower in 10 Years?

Assessment: STABLE to SLIGHTLY NARROWING

The portfolio simplification (exit ice cream, waters) will CONCENTRATE the moat around the strongest categories -- Coffee and PetCare have genuine brand moats that are durable. But the overall competitive environment is tougher: private label is structurally gaining share, GLP-1 is a real headwind to volumes, and local emerging market competitors are getting better. Net moat trajectory is approximately flat.

Phase 4: Management & Capital Allocation

CEO Transition Timeline

CEO	Tenure	Key Actions	Departure
Mark Schneider	2017 - Aug 2024	Portfolio rotation (exit Skin Health, Waters NA), Starbucks license, Health Science pivot	Departed suddenly; no clear succession plan
Laurent Freixe	Sep 2024 - Sep 2025	Reversed restructuring, increased A&M spend, simplified zones	Dismissed for code of conduct violation
Philipp Navratil	Sep 2025 - present	Ice cream exit, waters divestment by 2027, 4-category focus, Fuel for Growth CHF 2.5B	In role 5 months; executing boldly

Assessment: Navratil's early moves are promising -- the ice cream exit and waters divestment represent a genuine strategic simplification rather than timid incrementalism. The "Fuel for Growth" savings delivered CHF 1.1B in 2025 (exceeding CHF 0.7B target). However, he needs 12-24 months of consistent execution to rebuild credibility. The 16,000 headcount reduction (including 12,000 white-collar positions) signals seriousness.

Capital Allocation (Last 5 Years)

Use of FCF	Amount	% of Total	Assessment
Dividends	~CHF 40B (cumulative)	~80%	Committed; 31st consecutive increase
Buybacks	~CHF 22B (cumulative)	~45%	Aggressive; funded partly by debt
M&A	~CHF 5B	~10%	De-emphasized recently
Organic CapEx	~CHF 25B	~50%	Adequate maintenance
Net Debt Change	+CHF 20B	N/A	Concerning: borrowed to fund returns

Key Concern: Dividends plus buybacks significantly exceeded FCF, with the difference funded by debt. The dividend of CHF 3.10/share costs approximately CHF 8.0B against 2025 FCF of CHF 9.2B -- a payout ratio of 87%. This leaves minimal buffer for organic investment. The buyback program completed in Dec 2024 with no new program, which is prudent given leverage.

L'Oreal Stake: Hidden Value or Governance Liability?

Nestle owns 20.1% of L'Oreal, worth approximately CHF 50B at market value. This represents CHF ~19/share of hidden value not reflected in Nestle's operating metrics. CEO Navratil has called it a "financial investment" but there is no indication of an imminent sale. Key considerations:

Positive: Provides optionality; L'Oreal is a world-class business growing at 7-8% organically
Negative: The capital is locked up, earning no return for Nestle shareholders beyond ~1% dividend income
Catalyst potential: Full or partial sale could raise CHF 25-50B, enabling substantial debt reduction or a special distribution

Phase 5: Strategic Assessment (New Under Navratil)

Portfolio Simplification

Action	Status	Timeline	Impact
Ice Cream sale to Froneri	Announced	2026-2027	Removes low-margin, non-core business
Waters & Premium Beverages exit	Formal discussions beginning Q1 2026	By 2027	Removes low-margin water (~9% UTOP)
Nutrition + Health Science merger	Completed	2025	Simplifies organization
Fuel for Growth cost savings	On track	CHF 1.0B/yr by end-2027	CHF 1.1B delivered in 2025
A&M investment increase to 9%	Achieved	End 2025	Protects brand equity
16,000 headcount reduction	Announced	2025-2027	12K white-collar positions

Post-simplification Nestle (est. 2028): ~~CHF 82B revenue concentrated in Coffee (~~28%), PetCare (~~21%), Nutrition (~~16%), Food/Confectionery (~35%). Higher-margin, higher-growth profile with UTOP margins potentially 17.5-18.5%.

2026 Guidance

Organic growth: 3-4% (includes ~20bp infant formula recall headwind)
UTOP margin: Improvement vs. 2025 (16.1%), strengthening in H2
FCF: Above CHF 9B

Megatrend Resilience Screen

Megatrend	Score	Notes
China Tech Superiority	0	Neutral; some China exposure but not tech-dependent
Europe Degrowth	-1	20% European revenue; private label headwind
American Protectionism	0	Localized production in most markets
AI/Automation	+1	Benefits from manufacturing automation, supply chain optimization
Demographics/Aging	0	Mixed; aging = less food consumption, but pet humanization positive
Fiscal Crisis	+1	Defensive consumer staples; pricing power in inflation
Energy Transition	0	Neutral; packaging transition costs, some agricultural exposure
GLP-1 Revolution	-2	CRITICAL headwind; 5-10% volume reduction potential

Total Score: -1 | Tier: T4 Exposed (GLP-1 at -2 triggers T4)

This is the same conclusion as the previous analysis. The GLP-1 drug revolution is a genuine structural threat to packaged food companies that the market has not fully priced in. While Nestle is better positioned than most (PetCare and Coffee are less affected), the overall portfolio remains vulnerable.

Phase 6: Decision Synthesis

Valuation Summary

+-----------------------------------------------------------+
|                  INVESTMENT RECOMMENDATION                  |
+-----------------------------------------------------------+
| Company: Nestle SA              Ticker: NESN.SW             |
| Current Price: CHF 79.91        Date: 2026-02-21           |
+-----------------------------------------------------------+
| VALUATION SUMMARY                                           |
| +-------------------------+-----------+-------------------+ |
| | Method                  | Value     | vs Current Price  | |
| +-------------------------+-----------+-------------------+ |
| | Graham Number           | N/A       | Negative book     | |
| | Net Current Asset Value | Negative  | N/A               | |
| | DCF (8% WACC)           | CHF 70    | -14% (overvalued) | |
| | Private Market (12x)    | CHF 83    | +4% MOS           | |
| | Owner Earnings 15x+L'O  | CHF 77    | -4% (overvalued)  | |
| | Owner Earnings 20x+L'O  | CHF 96    | +17% MOS          | |
| +-------------------------+-----------+-------------------+ |
|                                                             |
| INTRINSIC VALUE ESTIMATE: CHF 78 (weighted average)         |
| MARGIN OF SAFETY: -2% (NO MARGIN OF SAFETY)                 |
+-----------------------------------------------------------+
| RECOMMENDATION:  [ ] BUY  [ ] HOLD  [X] WAIT  [ ] SELL     |
+-----------------------------------------------------------+
| STRONG BUY PRICE (30% MOS):  CHF 55                         |
| BUY PRICE (20% MOS):         CHF 62                         |
| ACCUMULATE PRICE (15% MOS):  CHF 66                         |
| FAIR VALUE:                  CHF 78                         |
| OVERVALUED:                  CHF 95+                         |
+-----------------------------------------------------------+
| POSITION SIZE: 0% (waiting for entry)                       |
| CATALYST: Fuel for Growth margins + portfolio simplification|
| PRIMARY RISK: GLP-1 drug adoption reducing food volumes     |
| SELL TRIGGER: OG <2% for 3yr, UTOP <14%, dividend cut       |
+-----------------------------------------------------------+

Scenario Analysis

Scenario	Probability	Price Target	Return
Bull: Navratil executes, margins recover to 18%, 4%+ OG	25%	CHF 100	+25%
Base: Gradual recovery, 3% OG, 17% margins by 2028	40%	CHF 80	0%
Bear: GLP-1 + private label erode volumes, margins compress	25%	CHF 55	-31%
Disaster: Governance crisis continues, dividend cut	10%	CHF 40	-50%
Expected	100%	CHF 74	-7%

Why WAIT Rather Than BUY

No margin of safety. At CHF 79.91, the stock trades approximately at fair value. The framework requires 20%+ MOS with catalyst, 30%+ without.
Execution risk is high. Navratil has been CEO for 5 months. The portfolio simplification is promising but unproven.
GLP-1 risk is real and growing. This structural headwind alone justifies a 10-15% discount.
Dividend payout ratio is 88%. Leaves almost no margin for error.
Expected return is negative (-7%). Probability-weighted scenarios show slight negative expected return.

Why Not REJECT (as Previously Done)

The strategic reset is genuinely transformative. Exiting ice cream and waters to focus on Coffee + PetCare + Nutrition + Food is the right strategy.
Fuel for Growth is delivering. CHF 1.1B savings in 2025 vs. CHF 0.7B target shows execution capability.
Brand portfolio remains world-class. Nescafe, Nespresso, Purina, KitKat are iconic global brands.
L'Oreal stake provides optionality. CHF 50B of hidden value could be monetized.
At CHF 60-65, this would be a compelling buy. The business quality is high; only the price is wrong.

Monitoring Metrics

Metric	Current	Buy Trigger	Action
Price	CHF 79.91	CHF 60-66	ACCUMULATE
Organic Growth	3.5%	Sustained 4%+	Increases IV
UTOP Margin	16.1%	Recovery to 17%+	Increases IV
Net Debt/EBITDA	2.85x	Decline to <2.5x	Reduces risk
Dividend Payout	88%	Decline to <75%	Increases safety
CEO Tenure	5 months	24+ months	Reduces governance risk

Appendix: Sources

Primary Sources

Nestle 2025 Full Year Results, GlobeNewsWire, Feb 19, 2026
Nestle 2024 Full Year Results, research-tree.com summary + Nestle press release
Nestle 2023 Full Year Results, GlobeNewsWire, Feb 22, 2024
Nestle 2022 Full Year Results, GlobeNewsWire, Feb 16, 2023
Nestle 2021 Full Year Results, GlobeNewsWire, Feb 17, 2022
Nestle 2020 Full Year Results, GlobeNewsWire, Feb 18, 2021
StockAnalysis.com NSRGY Income Statement (2021-2024)