Nestle Up to Nestle's
12/09/2005 12:00 am EST
Ivan Martchev is uniquely positioned to offer global advice. He was a scholarship student at American University in Bulgaria, the first US academic institution in the former Eastern Bloc. Now, as a US-based advisor, he sees a "sweet" opportunity in Switzerland.
"Nestlé (NSRGY Other OTC) was one of the first stocks included in our model portfolio. Today, it continues to be an anchor for any long-term-oriented portfolio. The company is the strongest player in the food industry, having a great portfolio of businesses and a first-rate management team with a long-term focus.
"Nestlé's strong cash flow has allowed it to pay down a significant portion of its debt, leading to a substantial decrease in its leverage ratio. Its debt is now below $8 billion. This is the main reason it's been returning capital to investors in the form of increases in both dividends and share buybacks. The latest $775 million buyback plan is almost complete and an even bigger one will commence in 2006. Dividends should continue to increase by 10% for at least the next two to three years.
"One of the hidden assets Nestlé has is its 75% stake in Alcon, the US-based eye-care company. Alcon represents about six percent of Nestlé's total sales and about 14% of Nestlé's profits. As Alcon has defied expectations by delivering double-digit growth and solid margins, Nestlé has benefited along the way. Nestlé's stake—at current market prices—in Alcon is $31 billion.
"There's no reason why Nestlé would change its balanced approach to conducting business. Its management team has led to good top-line growth, margin improvements, investing in the business, and paying out some of its cash to the shareholders. The current price of the stock doesn't reflect Nestlé's qualities; and it's expected to perform even better in the future."