On Wednesday, Danone SA (BN:FP) (OTC: OTC:), a consumer goods giant with a market capitalization of $43.67 billion, experienced a rating downgrade by Jefferies, with the firm lowering its stance from Hold to Underperform. This adjustment comes alongside a reduction in the price target, now set at EUR 56.00, down from the previous EUR 66.00. According to InvestingPro analysis, which shows the company currently trading at $13.50, the stock appears to be fairly valued. The move reflects heightened concerns over the company’s performance in the coming year.
The downgrade is based on a reevaluation of issues that led to a previous downgrade from Buy to Hold in September 2024, focusing on elements that have been driving sales growth and operating margin improvement since 2022. While InvestingPro data shows Danone (EPA:) maintains strong financial health with a 48.44% gross profit margin and has consistently paid dividends for 33 consecutive years, Jefferies has identified a potential for a significant sales shortfall and margin miss in 2025, which could impact Danone’s credibility.
The three key business segments that are under scrutiny are Danone’s US Creamers, China Waters (NYSE:), and China Specialised Nutrition divisions. Jefferies suggests that if their projections are accurate, Danone could face a decrease in its price-to-earnings ratio, falling from 17 times next twelve months (NTM) earnings to approximately 14 times.
The report from Jefferies indicates that the anticipated underperformance of these critical units may lead to a devaluation of Danone’s stock in the near term. The analyst’s statement underscores concerns about the company’s ability to maintain its sales growth and margin progression in the face of these challenges. With the revised price target and rating, investors are given a cautious outlook on Danone’s financial prospects for 2025.
In other recent news, Danone has reported a resilient Q3 sales growth in the face of market challenges. Despite a challenging consumer environment, the company saw a 4.2% increase in like-for-like sales, as revealed by CFO Juergen Esser during the Third Quarter 2024 Sales Conference Call.
Significant growth was noted in North America and the China, North Asia, and Oceania regions, with total net sales reaching approximately €6.8 billion. However, this represents a slight decline on a reported basis, primarily due to currency fluctuations and the divestiture of Horizon Organic.
Danone confirmed its full-year guidance, expecting continued sales growth and a moderate improvement in operating margin. The company’s growth was attributed to strategic investments in category leadership and a focus on science-based, consumer-centric business models. In the future, Danone projects like-for-like sales growth between 3% and 5% for 2024, alongside a moderate improvement in recurring operating margin.
Despite these positive developments, the company faced some challenges, including negative currency impacts and divestitures, which led to a 1.2% decline in reported net sales. Inflationary pressures on costs may persist into 2025. Furthermore, despite overall growth, the company experienced a negative pricing impact of -2% in China due to new product launches.
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