Jefferies Upgrades Nestle to Buy, Downgrades Danone on Growth Concerns

Jefferies issued contrasting outlooks for two of Europe's largest food producers, upgrading Nestlé (NESN) to a Buy rating while downgrading rival Danone (DANO) to Underperform, according to a research note from the investment bank.

Danone Downgraded on US, China Headwinds

Jefferies slashed its rating on Danone to Underperform from a previous Buy, cutting its price target on the stock to €62 from €80. The downgrade is rooted in what the bank calls "mounting concerns" over slowing growth in two critical segments: China nutrition and North American dairy.

According to the analysts, these two divisions account for 30% of sales but contributed more than half of Danone's like-for-like growth in the first quarter of 2026. Jefferies highlighted specific areas of weakness:

• North American Yogurt: Despite Danone adding production capacity, Nielsen data shows the company's sales contracted by 2% over the past year in a category that grew about 11%. This resulted in a market share loss of approximately 350 basis points.
• China Nutrition: The company's Aptamil brand saw its online market share fall by 280 basis points year-over-year in the second quarter, as domestic competitors gained ground. Pricing in medical nutrition is also facing pressure from provincial procurement policies.

As a result of these challenges, Jefferies lowered its earnings per share (EPS) estimates for Danone for fiscal years 2026, 2027, and 2028 by 2%, 7%, and 9%, respectively. The new price target implies a significant valuation de-rating, analysts led by David Hayes noted.

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Nestle Upgraded as Past Missteps Fade

In a separate move, Jefferies upgraded Nestlé to Buy from Hold and raised its price target to 99 Swiss francs from 84. The bank argues that the negative effects of "resource allocation missteps" from 2022 are now fading, creating a more positive outlook for the company.

Analysts believe Nestlé is moving past a period of overinvestment in volume that followed pandemic-era demand, which had led to pricing challenges and reduced brand spending. Momentum is now seen improving in key categories like coffee and petcare, with coffee volume and mix beating expectations in the first quarter.

Jefferies also pointed to a reset in Nestlé’s 2025 margin target to 16% as a positive development. Furthermore, the potential for a gradual monetization of the company's remaining 20% stake in L'Oreal could provide capital for future acquisitions, according to the note.