Nestlé: A Blend of Stability and Opportunity.

Nestlé is the largest food and beverage company in the world, with a highly diversified portfolio spanning coffee, pet care, food, and nutrition products. From globally recognized brands like Nescafé, Nespresso, KitKat, and Purina to its strong presence across both developed and emerging markets, the company combines scale, brand strength, and deep consumer reach. With a focus on its core categories, ongoing product innovation, and exposure to long-term trends such as health and nutrition, Nestlé is positioning itself for continued growth in a changing consumer environment. The question remains: Does this global consumer staples leader deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should start by mentioning that at the time of writing this analysis, I do not own any shares in Nestlé. If you would like to see the stocks in my portfolio or copy my portfolio, you can do so on eToro, You can find instructions on how to do this here. If you want to purchase shares (or fractional shares) of Nestlé, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started with investing with as little as $50.

The Business

Nestlé is the largest food and beverage company in the world, with a highly diversified portfolio spanning coffee, pet care, nutrition and health science, prepared dishes, dairy, confectionery, and water. Founded in 1866 and headquartered in Vevey, the company operates in 185 countries and sells products that are consumed by billions of people every day. Its portfolio includes more than 2.000 brands, with over 30 generating more than CHF 1 billion in annual sales, reflecting both the scale of its operations and the depth of its consumer reach. Nestlé’s business is increasingly focused around four core areas: coffee, pet care, nutrition, and food and snacking, where it holds leading positions globally. In coffee, brands such as Nescafé, Nespresso, and Starbucks licensed products drive growth across instant, premium, and out-of-home channels. In pet care, Purina offers a wide range of products from mass-market to premium veterinary diets. The nutrition segment spans infant formula, medical nutrition, and active lifestyle products, while the food and snacking category includes well-known brands such as Maggi, Stouffer’s, and KitKat. Geographically, Nestlé generates revenue across developed and emerging markets, with a balanced exposure that allows it to benefit from population growth and rising incomes in emerging economies while maintaining stability in mature regions. Its products are sold through a wide range of channels, including supermarkets, convenience stores, traditional trade outlets, foodservice, vending, and e-commerce, supported by a highly integrated global supply chain and localized operating structure that adapts products to regional tastes. Nestlé’s competitive moat is built on a combination of global scale, brand strength, distribution superiority, scientific capabilities, and diversification, which together create a self-reinforcing system that is extremely difficult to replicate. The most important and defensible element of its moat is its distribution network, often described as a logistical fortress. Nestlé products are present in the vast majority of retail outlets globally, including millions of small and fragmented stores in emerging markets where its supply chain is often more reliable than local infrastructure. This gives Nestlé a significant advantage in shelf space, product availability, and frequency of consumer interaction. By leveraging a shared route-to-market across multiple categories, Nestlé is able to place several of its brands in the same store, increasing its share of shelf and share of wallet while strengthening relationships with retailers. Replicating this distribution mesh would require decades of investment, local expertise, and scale that few competitors possess. Another key pillar of Nestlé’s moat is its portfolio of globally recognized brands, many of which are deeply embedded in daily consumer habits. These brands benefit from high levels of trust and familiarity, allowing Nestlé to maintain pricing power even during periods of significant input cost inflation. In categories such as premium coffee and pet care, consumers tend to be relatively insensitive to price changes, prioritizing consistency and quality over switching to cheaper alternatives. This behavior supports stable margins and strong cash flow generation over time. Scale further enhances this advantage by providing Nestlé with significant purchasing power across raw materials, packaging, and logistics, enabling cost efficiencies and supply security that smaller competitors cannot match. Nestlé also benefits from a significant innovation advantage driven by its large and sustained investment in research and development. The company spends more on R&D than any other food company, enabling it to develop proprietary technologies and formulations, particularly in areas such as medical nutrition, functional foods, and health-focused products. This creates what can be described as a science-based moat, where differentiation is not only based on branding but also on measurable product benefits. These capabilities allow Nestlé to stay aligned with long-term consumer trends toward health, wellness, and premiumization while entering higher-margin categories that are more difficult to commoditize. The company’s vertically integrated supply chain and close partnerships with farmers further reinforce its competitive position. By maintaining control over sourcing, production, and distribution, Nestlé ensures consistent product quality, improves cost control, and enhances resilience against supply disruptions. Finally, its diversification across categories and geographies acts as a natural hedge, reducing volatility and providing stability across economic cycles. Weakness in one category or region is often offset by strength in another, making Nestlé a resilient and defensive business.

Management

Philipp Navratil serves as the CEO of Nestlé, a role he assumed after a long career within the company across multiple geographies and business units. He brings extensive experience from the consumer staples industry, with a strong track record of driving commercial performance, strengthening market execution, and managing complex global operations. Having spent years inside Nestlé’s decentralized structure, he has developed a deep understanding of how to balance global scale with local agility, which is a defining characteristic of the company’s operating model. Prior to becoming CEO, Philipp Navratil held several senior leadership positions within Nestlé, where he was responsible for overseeing key markets and categories, building brand strength, and improving operational efficiency. His roles exposed him to both developed and emerging markets, giving him insight into consumer behavior across income levels and regions, as well as experience managing large-scale distribution networks and multi-category portfolios. Throughout his career, he has been closely involved in executing Nestlé’s strategy of combining global brand power with local execution, ensuring that products are tailored to regional tastes while maintaining consistent brand positioning. As CEO, Philipp Navratil has made it clear that one of his top priorities is to strengthen Nestlé’s performance culture. While the company has long been known for its values, long-term thinking, and disciplined approach to business, he has emphasized the need to complement these strengths with greater accountability, clearer ownership, and a sharper focus on results. He has introduced changes to incentive structures to better align compensation with performance, including linking bonuses more closely to key growth metrics and ensuring that teams are accountable for delivering sustainable organic growth. Another key focus for Philipp Navratil is simplifying the organization while preserving Nestlé’s unique local DNA. Rather than centralizing decision-making, he is reinforcing a model where global coordination is limited to areas that benefit from scale, such as brand stewardship, innovation, and long-term category strategy, while local market teams retain full ownership of execution, customer relationships, and profit and loss responsibility. This approach is designed to reduce complexity, eliminate duplication, and enable faster, more effective decision-making closer to the consumer. Philipp Navratil has also brought greater strategic clarity by focusing Nestlé’s portfolio around four core growth platforms: coffee, pet care, nutrition, and food and snacking. By concentrating resources on these areas, he aims to strengthen the company’s leadership positions in categories where it has clear competitive advantages, while continuing to streamline the broader portfolio and prioritize higher-growth and higher-margin segments aligned with long-term consumer trends such as health, wellness, and premiumization. Philipp Navratil’s leadership style is often described as disciplined and execution-focused, with a strong emphasis on accountability, clarity, and empowerment. He is working to create an organization where performance is measured, rewarded, and continuously improved, while still preserving Nestlé’s collaborative culture and long-term orientation. Given his deep experience within the company and his focus on driving both cultural and operational change, I believe Philipp Navratil is well-positioned to guide Nestlé through its next phase of growth and value creation as the global leader in food and beverages.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Nestlé’s ROIC has been remarkably stable over the past decade, generally fluctuating in a relatively tight range around 12–14%, which reflects the nature of the business rather than a lack of improvement. The company operates in consumer staples categories where demand is predictable, margins are relatively stable, and capital intensity is moderate, which naturally leads to a steady ROIC profile rather than large swings. Unlike companies in more cyclical or capital-heavy industries, Nestlé does not experience significant volatility in returns because its products are consumed daily, its pricing power allows it to offset inflation over time, and its global scale enables consistent efficiency across its operations. At the same time, Nestlé continuously reinvests in its brands, supply chain, and innovation, which tends to keep returns from expanding significantly, as incremental capital is deployed to defend and grow the moat rather than to maximize short-term efficiency. Another important factor behind the stability is diversification. Nestlé operates across multiple categories such as coffee, pet care, nutrition, and food, as well as across developed and emerging markets. This means that weakness in one area is often offset by strength in another, which smooths both earnings and returns on capital over time. In addition, the company has been actively reshaping its portfolio toward higher-quality categories, which has helped maintain ROIC at a consistently solid level rather than allowing it to drift lower. The decline in ROIC to 11,8% in 2025, the lowest level in more than a decade, is mainly due to lower operating profit rather than a fundamental change in the business. This also matches what management has said, pointing to lower profits and higher impairments as the main reasons. In simple terms, the business is earning less on the same capital. There are a few key reasons for this. Costs for important inputs like coffee and cocoa have increased, which has put pressure on margins. Nestlé can raise prices, but it often takes time before higher prices fully offset these cost increases. At the same time, the company has increased spending on marketing, innovation, and growth initiatives, which supports the business long term but reduces profits in the short term. On top of that, impairments and other one-off costs have further reduced operating profit, leading to the lower ROIC. Looking ahead, there are good reasons to expect ROIC to improve again, although probably not dramatically. As cost inflation normalizes and pricing actions continue to flow through, margins should recover, which would lift operating profit and therefore ROIC. The company is also focusing more on higher-margin and higher-return categories such as coffee, pet care, and nutrition, which should gradually improve the overall quality of the business. In addition, once the current phase of elevated investment stabilizes, the company should be able to generate higher returns on the capital already deployed. That said, Nestlé is unlikely to become a high-ROIC outlier, as its strategy prioritizes stability, brand investment, and long-term growth over maximizing short-term returns, which means ROIC will likely remain within a relatively stable band over time rather than expanding significantly.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Nestlé’s equity has declined significantly over the past decade, but this is largely a result of capital allocation decisions rather than a deterioration of the underlying business. The main driver behind the decline is the company’s consistent share repurchase programs, where Nestlé has returned substantial capital to shareholders by buying back its own shares, which reduces equity on the balance sheet. In addition, the company has at times recorded impairments and restructuring charges, which also reduce equity. Currency movements have likely played a role as well, given Nestlé’s large global exposure. Importantly, this decline in equity does not reflect weakening fundamentals, as the company continues to generate strong and stable cash flows and maintain solid profitability. From a risk perspective, the key question is whether the balance sheet remains healthy rather than whether equity is growing. Nestlé still operates with a strong financial position, supported by its predictable earnings, high margins, and ability to convert profits into cash. As long as the company can comfortably service its obligations and maintain flexibility for investments and acquisitions, a declining equity base is not necessarily a concern. Looking ahead, equity could stabilize or grow modestly if the pace of share buybacks slows, profitability improves, or fewer impairments are recorded. However, it is unlikely that equity will return to previous levels if Nestlé continues to prioritize returning capital to shareholders.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Nestlé’s free cash flow has been relatively stable over the past decade, but it has not grown consistently, which explains why it is still slightly below the level from ten years ago. The main reason is that the company has faced periods where profits were under pressure, especially due to higher costs for key ingredients like coffee and cocoa. When costs rise quickly, it takes time for price increases to fully catch up, which reduces the amount of cash the company can generate in the short term. At the same time, Nestlé has had periods where it invested more heavily in expanding production capacity and supporting growth, which also reduced free cash flow during those years. In addition, higher costs have tied up more cash in the business, which has further weighed on cash generation. In recent years, there are clear signs of improvement. Free cash flow has increased as investment levels have come down and the company has become more disciplined in how it spends money. Nestlé is now focusing more on getting better returns from what it already owns rather than continuing to build new capacity, which supports stronger cash generation. The company is also working on becoming more efficient across its operations, which should help free up more cash over time. Looking ahead, free cash flow is expected to grow, although likely in a steady and gradual way. As cost pressures ease and price increases continue to take effect, profitability should improve, which will support higher cash generation. At the same time, the lower level of investment and improved efficiency should allow more of the company’s earnings to turn into cash. Management has indicated that it expects free cash flow to remain strong and sees further room for improvement going forward. Nestlé uses its free cash flow in a very consistent way. The first priority is to reinvest in the business to support growth, especially in key areas like coffee, pet care, and nutrition. The company also uses cash for smaller acquisitions that can strengthen its position in these categories. Beyond that, returning cash to shareholders through dividends is an important part of the strategy, and when there is excess cash available, it is also used to buy back shares. The free cash flow yield is at its highest level in the past decade, which suggests that the shares are trading at a more attractive valuation than usual. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is debt. It is crucial to assess whether a business has a manageable level of debt that can be repaid within a period of three years, determined by dividing total long-term debt by earnings. Upon analyzing Nestlé’s financials, I found that the company has 4,9 years of earnings in debt. While this is slightly above the ideal level, it is not a major concern given Nestlé’s scale, stable cash generation, and long-standing financial strength. In fact, the company has recently reduced its net debt, supported by strong cash flow, and management has indicated that they aim to bring leverage down further over time. Overall, while debt is somewhat elevated by this measure, it appears well under control and is moving in the right direction.

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Risks

Macroeconomic factors is a risk for Nestlé because they directly affect both how consumers behave and how much it costs the company to operate, which in turn impacts sales, margins, and overall performance. One of the most important challenges is inflation in key inputs such as coffee and cocoa, where prices have risen sharply in recent years. When costs increase this quickly, Nestlé raises prices to protect margins, but there is often a limit to how much consumers are willing to pay. If prices rise too much or too fast, consumers may switch to cheaper alternatives, buy less, or trade down to lower-priced products, which puts pressure on volumes. This is particularly visible among lower-income consumers, especially in markets like North America, where food represents a larger share of household spending and demand has been weaker as a result. Another key risk is currency movements, particularly the strength of the Swiss franc. Nestlé earns the vast majority of its revenue outside Switzerland but reports its results in Swiss francs. When the franc strengthens, the value of foreign earnings declines when converted back into Swiss francs, which reduces reported sales and profits even if the underlying business is performing well. This has been a persistent headwind for many years and is expected to continue, making it more difficult for Nestlé to show strong reported growth. In addition, broader economic conditions such as slower growth, weak consumer confidence, and geopolitical tensions can also impact Nestlé’s performance. In periods of economic uncertainty, consumers tend to become more cautious, which can lead to lower demand for certain products, particularly those that are seen as less essential or more premium. At the same time, factors such as tariffs or trade restrictions can increase costs or disrupt supply chains, further pressuring margins.

Competition is a risk for Nestlé because it operates in highly competitive categories where multiple players are constantly fighting for shelf space, pricing power, and consumer attention. The company competes not only with large global brands such as Kraft Heinz, General Mills, Mondelez International, Unilever, and Danone, but also with strong regional players and an increasing number of private label products. While Nestlé’s scale and brand portfolio provide an advantage, competition remains intense and can affect both growth and margins. One of the most important competitive pressures comes from private label products. These products are typically cheaper and have improved significantly in quality over time, making them more attractive to consumers. During periods of economic pressure, more consumers shift toward these lower-priced alternatives, which has already been observed in categories such as frozen food, pet care, and coffee creamers. This forces Nestlé to either lower prices or accept lower volumes, both of which can impact revenue and profitability. The risk is especially relevant in price-sensitive categories, where brand loyalty is weaker and purchasing decisions are more driven by price. At the same time, Nestlé faces strong competition from global brands across nearly all its categories. In coffee, its key brands compete with both traditional players and newer premium offerings, while in bottled water, brands like Perrier and San Pellegrino compete with products from The Coca-Cola Company and PepsiCo. In food and snacks, competition is constant from companies with similarly strong brands and large marketing budgets. These competitors invest heavily in innovation, branding, and distribution, which means Nestlé must continuously spend to maintain its market position. Consumer behavior also adds to the competitive risk. There is a growing preference among some consumers for fresh and less processed foods, which can reduce demand for certain packaged and frozen products. In addition, the consumer base is becoming more divided. Some consumers are willing to pay for premium products, where Nestlé continues to see strength, particularly in areas like Nespresso. However, a growing number of consumers are more price-sensitive and are actively seeking value, smaller portions, or shopping in discount channels. This creates a more challenging environment where Nestlé must balance premiumization with affordability.

Product recalls is a risk for Nestlé because even a single incident can have both immediate financial consequences and longer-term effects on consumer trust, which is critical for a company built on brand reputation and product safety. When a recall occurs, the direct impact is clear. Products must be removed from shelves, destroyed, or replaced, which leads to lost sales and additional costs related to logistics, testing, and compliance. In the recent infant formula case, Nestlé had to write off inventory and manage product returns, and it also faced temporary shortages as production was redirected to replenish supply. Even if the issue is identified early and handled well, these disruptions can still meaningfully affect short-term performance. Beyond the immediate costs, the bigger risk lies in trust. Nestlé’s business depends heavily on consumers believing that its products are safe and of high quality, especially in sensitive categories like infant nutrition. When a recall happens, it can cause consumers to question not only the specific product but also the broader brand. This can lead to reduced demand, at least temporarily, as consumers switch to alternatives. Rebuilding that trust often requires time, consistent communication, and increased marketing efforts. Even though management has expressed confidence that trust will return, they also acknowledge that it may take time and continued investment. Product recalls can also lead to greater scrutiny from regulators and authorities. After an incident, production processes, sourcing, and quality controls may be examined more closely, which can increase costs and slow down operations. In some cases, companies may need to adjust suppliers or implement additional testing procedures, adding complexity to the business. In the recent case, the issue was traced back to a contaminated ingredient from a supplier, highlighting that risks can also come from outside Nestlé’s direct control.

Reasons to invest

Nestlé’s core portfolio is a reason to invest in Nestlé because it gives the company a clear focus on its strongest categories and brands, where it has leading positions, strong growth potential, and the ability to generate consistent cash flow. By concentrating on coffee, pet care, and food and snacking, Nestlé is focusing its resources on areas where it already has competitive advantages and where long-term demand trends are favorable. These categories benefit from structural growth drivers such as rising coffee consumption, increasing pet ownership, and changing eating habits, which supports steady and predictable growth over time. A key strength of this portfolio is that many of Nestlé’s core businesses are global leaders. In coffee, the company holds the number one position with brands like Nescafé, Nespresso, and its partnership with Starbucks, covering multiple price points and consumption occasions. This allows Nestlé to capture growth across premium and affordable segments, as well as in fast-growing areas such as ready-to-drink and cold coffee. In pet care, Purina benefits from strong trends like pet humanization and premiumization, with opportunities to expand further in underpenetrated markets and higher-margin segments such as pet treats and specialized nutrition. Another important advantage is that Nestlé’s portfolio is both diversified and focused at the same time. While the company operates across several categories, a large share of its business comes from coffee and pet care, which are among the most attractive areas in the industry. At the same time, Nestlé maintains a broad offering that allows it to serve different consumer needs, from affordable products to premium offerings. This positions the company well in an environment where consumer demand is becoming more polarized, with some consumers trading down while others are willing to pay for higher-quality products. In food and snacking, changing consumer habits such as more frequent and flexible eating occasions create opportunities for Nestlé to leverage its broad product range and capture new demand. At the same time, the company is actively managing its portfolio by reducing focus on smaller or less strategic brands and reallocating resources toward its most promising areas.

Product innovation and marketing is a reason to invest in Nestlé because it drives growth by keeping the company relevant, expanding its categories, and strengthening its brands in a rapidly changing consumer environment. Nestlé has a long history of innovation, but management is now putting even greater focus on improving the speed and impact of both innovation and marketing, ensuring that new products are not only launched but also scaled globally and supported effectively. This creates a system where strong consumer insights lead to better products, which are then amplified through targeted marketing, driving both market share gains and category growth. A key advantage is Nestlé’s ability to innovate across different price points, making its products accessible to a wide range of consumers. Through what management calls price and pack architecture, the company adjusts pack sizes and price points to meet consumer needs without compromising margins. This is especially important in today’s environment, where some consumers are trading down while others are still willing to pay for premium products. By offering both affordability and premium options, Nestlé can capture demand across the full spectrum, which supports stable and resilient growth. Innovation also allows Nestlé to create entirely new growth opportunities within its categories. A good example is cold coffee, which is expanding the coffee category by attracting new consumers and increasing consumption occasions. Cold coffee meets needs such as convenience, refreshment, and indulgence, and is particularly popular among younger consumers. Nestlé is well positioned to capture this trend through its leading coffee brands like Nescafé, Nespresso, and its partnership with Starbucks, offering products across formats such as ready-to-drink, concentrates, and soluble coffee. This ability to innovate across formats and scale globally gives Nestlé a strong advantage in capturing new demand. At the same time, Nestlé is improving how it markets its products. The company is building a more modern and focused marketing approach, using data and technology to better understand consumers and create more effective campaigns. It is also concentrating its spending on fewer, stronger brands and innovation platforms, rather than spreading resources too thinly across hundreds of smaller brands. This more disciplined approach increases the return on marketing investments and ensures that the brands with the highest potential receive the most support. Another important point is that innovation and marketing work together to support margins over time. New products and improved offerings allow Nestlé to maintain pricing power and remain competitive, while strong marketing helps build brand loyalty and keep products visible to consumers. This combination is especially important in competitive categories, where continuous innovation and strong brand building are required to maintain market share.

Health and nutrition is a reason to invest in Nestlé because it aligns the company with some of the strongest and most durable long-term consumer trends. Across the world, consumers are becoming more focused on their health, whether it is maintaining a healthy weight, preserving muscle mass as they age, or improving overall well-being through better nutrition. This shift is driven by structural factors such as aging populations, rising healthcare costs, and increasing awareness of how diet impacts long-term health, which supports steady and predictable demand growth over time. Nestlé is well positioned to benefit from this trend because it has the capabilities to translate these needs into products that consumers use every day. The company has built strong expertise in areas such as protein, micronutrients, and functional ingredients, allowing it to develop products that deliver specific benefits rather than just basic nutrition. This makes its offerings more relevant in a world where consumers increasingly look for food that supports their lifestyle and health goals. Another important advantage is that health and nutrition can be applied across Nestlé’s existing categories. This means the company does not rely on one specific segment to benefit from the trend, but can instead improve and reposition a wide range of products by making them healthier, adding functional benefits, or adjusting ingredients to better match consumer preferences. This creates growth opportunities both through new product launches and by strengthening existing brands. Health and nutrition also support higher-value products, as consumers are often willing to pay more for quality, functionality, and perceived health benefits. At the same time, Nestlé can offer products at different price points, making them accessible to a broader group of consumers. This is particularly important in emerging markets, where demand for affordable but nutritious food continues to grow.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 3,51, which is from 2025. I have selected a projected future EPS growth rate of 8%. Management expects EPS to grow by 6%-10% moving forward. Additionally, I have selected a projected future P/E ratio of 16, which is twice the growth rate. This decision is based on Nestlé's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be CHF 29,97. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Nestlé at a price of CHF 14,98 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 15.904, and capital expenditures were 4.527. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 3.169 in our calculations. The tax provision was 2.640. We have 2.573 outstanding shares. Hence, the calculation will be as follows: (15.904 – 3.169 + 2.640) / 2.573 x 10 = CHF 59,76 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Nestlé's Free Cash Flow Per Share at CHF 4,42 and a growth rate of 8%, if you want to recoup your investment in 8 years, the Payback Time price is CHF 50,78.

Conclusion

I believe Nestlé is an intriguing company with strong management. It has built its moat through a combination of global scale, brand strength, distribution superiority, scientific capabilities, and diversification, which together create a self-reinforcing system that is extremely difficult to replicate. Nestlé has achieved a stable ROIC over the past decade, and while ROIC decreased slightly in 2025 below its usual level, it is expected to improve over time and return to its historical range. Free cash flow has grown over the past three years and is expected to continue growing going forward. Macroeconomic factors is a risk for Nestlé because they influence both consumer behavior and costs, which can pressure sales and margins. Higher input costs, weaker consumer spending, and currency movements can reduce demand, limit pricing power, and lower reported results even when the underlying business remains strong. Competition is a risk for Nestlé because it operates in highly competitive markets where global brands, local players, and private label products all compete on price, shelf space, and consumer attention. This can pressure both pricing and volumes, as Nestlé must continuously invest in innovation and marketing to maintain its position while competing with lower-cost alternatives. Product recalls is a risk for Nestlé because they can lead to immediate costs and lost sales while also damaging consumer trust, which is critical for its brands. Even when handled well, recalls can reduce demand, increase scrutiny, and require time and investment to rebuild confidence. Nestlé’s core portfolio is a reason to invest in Nestlé because it focuses on leading categories like coffee and pet care, where the company has strong brands, competitive advantages, and solid growth opportunities. This combination of focus and diversification supports steady demand, pricing power, and consistent cash flow over time. Product innovation and marketing is a reason to invest in Nestlé because it drives growth by keeping its brands relevant, capturing new demand, and strengthening market share. By combining strong innovation with focused marketing, Nestlé can adapt to changing consumer preferences, support pricing power, and deliver steady long-term growth. Health and nutrition is a reason to invest in Nestlé because it aligns the company with strong long-term trends such as aging populations and increasing health awareness, supporting steady demand growth. By applying these trends across its portfolio, Nestlé can drive innovation, strengthen its brands, and capture both premium and affordable growth opportunities. I believe there are many things to like about Nestlé, and buying shares at the Ten Cap price of CHF 59 would be an attractive long-term investment.

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