Shares in Nestle jumped 4 per cent today on a UBS upgrade due to hopes the world's biggest food group will sell its remaining stake in eye care subsidiary Alcon .
The stock is also in focus ahead of nine-month sales figures due on Thursday when Nestle is expected to post a slight increase in organic growth to 3.6 per cent from a disappointing 3.5 per cent in the first half, according to a Reuters poll.
Shares in Nestle, which makes Nescafe coffee and KitKat chocolate bars, makes were up 3.6 per cent to 44.98 Swiss francs at 1305 GMT, outperforming a 2.2 per cent rise in the DJ Stoxx European food and beverage index.
UBS said while it expected unemployment to continue to pressure profits in the developed world, it sees strong demand in emerging markets, upgrading the stock to "buy" from "neutral" and lifting its price target to 50 francs from 43 francs.
It also said the fact that Alcon's share price has risen to the point where Nestle's "put" option is almost equivalent to that of the "call" of Swiss drugmaker Novartis made it likely that a sale would happen "sooner rather than later".
Doubts were raised after last year's market slide over whether Nestle would sell its remaining 52 per cent Alcon stake to Novartis, which bought 25 percent last year and agreed an option to buy the rest from January next year.
UBS said if Nestle were to sell on January 1st, it could have net cash of close to 8 billion Swiss francs and noted that stripping out Alcon would make Nestle the lowest valued large-cap consumer staple stock.
Nestle has said it does not plan any big acquisitions in 2009 and 2010 and has declined comment on whether it may enter the fray for Britain's Cadbury, subject to a bid proposal from Kraft Foods.
Analysts have speculated that Nestle might be drawn into a bid for Cadbury, but due to competition issues it might look at a joint offer with US chocolate maker Hershey, with the US group looking to take Cadbury's chocolate interests leaving Nestle with Cadbury's Trident chewing gum business.
Cadbury gives a third-quarter trading update on Wednesday.
Nestle missed first-half sales growth forecasts and trimmed its 2009 outlook, but its operating margins were boosted by Alcon.
Nine-month sales were expected to have taken a 4.3 per cent hit from foreign exchange effects, largely due to the strong Swiss franc, which also hit first-half sales.
Analysts on average forecast price rises to contribute 2.7 per cent to organic growth while volume growth should strengthen slightly to 0.9 per cent.
Nestle Chief Executive Paul Bulcke told Reuters last month he expects the global economy to recover a little faster than first thought, helping to boost the company's sales growth, especially in late 2009.
"The outlook statement may once again prove the catalyst on the day," said Credit Suisse analyst Alex Molloy, adding that the market consensus for full-year organic growth of 3.8 percent suggested analysts were not convinced by Mr Bulcke's optimism.
Reuters