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No. of Recommendations: 2
Longreits,

Any color on why Nestle seems so cheap? At first glance, it seems ridiculously cheap, at 5 times earnings per M*'s 2010 numbers. But, 2010 had a huge one-time gain on sales of securities in Alcon to Novartis. Backing that one-timer out, EPS still seems to be about $5.40 on a $USD basis. That brings it to a more sensible 10.5 PE. Still, that seems fairly cheap for a quality brand name. Especially with a yield approaching 4%. Historical PEs were mid to high teens pre-crisis.

That divi raise also seems pretty likely to me, given the Alcon security sale and a large cash influx. Cash & Short term investments are up 10B CHF in 2010 over 2009. There should be some of that mountain left for shaerholders! These numbers from 2010 are stale, though. Overall, it seems likely that some of that cash should trickle down to shareholders, especially with their history of divi raises.

Operating income is pretty steady; no real lumpiness apparent at all, even through the crisis. All the lumpiness shows up on the bottom line and comes from one-time beneficial items. Operationally, they look pretty predictable. Margins seem robust: 58% gross, with 15% operating margins. Net margins and ROE are distorted due to the one-timer, but if my quick calc after backing it out is right, 2010 ROE slightly exceded 20%, in-line with previous years. Net margin sits just south of 11%, up from 2009. Again, that's a guesstimate, since I'm having a hard time backing out that one-timer quickly. All those are 2010 numbers. TTM numbers seem a little softer, but again generally in-line with the last 5 years' performance. D/E is conservative, and bonds trade at very low yields; coupons on most debt are low as well. All in all, they seem relatively healthy and predictable. Is there something else going on that isn't apparent from the financials? Does something else have them in the dumps? Is this just a European risk thing? Has their sale of Alcon come under fire? After a quick glance, I'm surprised at their PPS.

Peter
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