Nestlé Shares Face Scrutiny Amid Conflicting Market Signals

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Nestlé's stock is concluding 2025 on a powerful note, yet a significant divergence is emerging between its market performance and its underlying financial health. As the share price reaches new peaks, a major credit agency has issued a cautionary downgrade, presenting investors with a complex puzzle. The core question is whether the current rally correctly anticipates a successful corporate transformation or if it overlooks deepening structural challenges.

The most immediate pressure point comes from S&P Global. While the agency affirmed Nestlé's credit rating, it revised its outlook to "Negative." This shift reflects concrete concerns: the company's leverage remains elevated, hovering between 2.9x and 3.0x EBITDA. Substantial dividend payouts are limiting opportunities for organic debt reduction. Concurrently, restructuring expenses and higher costs for key commodities like raw coffee and cocoa are pressuring profitability. S&P anticipates a decline in Nestlé's adjusted EBITDA margin in the coming years.

This warning stands in stark contrast to the equity market's recent enthusiasm. The stock has surged over 16% in the past 30 days, climbing to a new 52-week high of USD 99.62.

Strategic Overhaul Reaches a Milestone

Operationally, management is pushing forward with a decisive portfolio restructuring. Just before the holiday season, Nestlé finalized the sale of its remaining stake in Herta Foods. This move completes the conglomerate's full exit from the low-margin processed meat business. Capital freed from this and other divestments is being redirected.

The company's focus is now squarely on high-growth, profitable segments: coffee (Nespresso and Nescafé), pet care (Purina), and Health Science. To strengthen these areas and drive organic growth back above 4%, Nestlé is making significant investments. Marketing budgets have been increased substantially, even as the company moves to eliminate approximately 16,000 positions globally.

The Persistent Volume Dilemma

Despite the share price appreciation, analysts from firms like Bernstein Research advise caution, citing limited upside potential. The fundamental issue remains the widening gap between price and volume. Nestlé has successfully implemented price increases across its portfolio, but this has come at the cost of customer attrition.

Interim results highlighted this persistent challenge. The key metric of Real Internal Growth (RIG), which measures pure volume growth, registered a meager 0.2%. A sustainable long-term recovery appears fragile without a reversal in sales volume trends. The market's current optimism seems to hinge on the belief that new CEO Philipp Navratil, who took the helm following a compliance breach by his predecessor, can break this cycle.

February 2026: The Critical Validation Point

The justification for the market's advance confidence will be tested on February 19, 2026. On this date, CEO Navratil will present Nestlé's full-year 2025 results. The report will serve as a crucial litmus test. If it demonstrates that increased marketing expenditure is successfully reigniting volume growth, the current valuation may find solid fundamental support. However, if sales volumes continue to stagnate, the recent breakout to USD 99.62 could prove to be a false signal, unmasking the tension between the stock's record high and the warning signs on the balance sheet.