Changing Tastes And Rising Costs Will Erode Valuation

Key Takeaways

• Shifting consumer preferences toward health and regulatory pressures are undermining demand and profitability for Lindt's traditional premium chocolate offerings.
  
• Economic cycles, raw material volatility, and competition from alternative snacks are threatening Lindt's revenue stability and long-term growth prospects.
  
• Strong premium brand, innovation, and global expansion drive sustained growth, while operational efficiency, sustainability, and ethical sourcing support profitability and mitigate reputational risks.

Catalysts

Engages in the manufacture and sale of chocolate products worldwide.

• Accelerating consumer shift toward health and wellness is threatening the long-term demand for Lindt's core high-sugar premium products, placing downward pressure on future revenue growth as more consumers seek out healthier alternatives or abstain from indulgence altogether.
  
• There is mounting regulatory risk related to sugar content, product labeling, and advertising restrictions in Lindt's largest developed markets; these regulations are expected to increase compliance costs and may reduce product variety, eroding net margins over time.
  
• Lindt's heavy reliance on premium positioning exposes it to significant operational risk during economic downturns or consumer down-trading cycles, potentially leading to sharp contractions in both revenue and profitability if middle-class consumers increasingly prioritize price over brand.
  
• Volatility in cocoa and key raw material prices, exacerbated by climate change and geopolitical instability, is expected to persist and threaten long-term margin stability, as already evidenced by recent inventory value increases and ongoing uncertainty over future cost base.
  
• The global confectionery sector's shift toward alternative snacking and functional foods is structurally reducing premium chocolate's overall share of wallet, making it increasingly difficult for Lindt to maintain long-term top-line growth and defend earnings in a rapidly evolving competitive landscape.

Chocoladefabriken Lindt & Sprüngli Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Chocoladefabriken Lindt & Sprüngli compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Chocoladefabriken Lindt & Sprüngli's revenue will grow by 5.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 11.3% today to 12.8% in 3 years time.
• The bearish analysts expect earnings to reach CHF 845.7 million (and earnings per share of CHF 3688.12) by about August 2028, up from CHF 643.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 0.0x on those 2028 earnings, down from 42.7x today. This future PE is lower than the current PE for the GB Food industry at 18.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 3.82%, as per the Simply Wall St company report.

Chocoladefabriken Lindt & Sprüngli Future Earnings Per Share Growth

Risks

• Continuing global premiumization trends and Lindt's ability to reach new and younger consumers-evidenced by strong launches like Dubai Style Chocolate and successful expansion in direct-to-consumer retail-support sustained revenue and brand equity growth over the long term.
  
• Ongoing investments in new stores, omni-channel expansion, and improved operating efficiencies have led to healthy EBIT margin progress over recent years, contributing to stable or expanding net margins even amid higher input costs.
  
• As the global middle class grows, especially in emerging markets, Lindt is leveraging its strong premium brand positioning and expanding store network to drive top-line growth, as evidenced by double-digit growth rates in markets like Japan, Brazil, and China.
  
• Innovation in product offerings and packaging, such as limited edition and high-end recipes, has enabled Lindt to capitalize on consumer trends for mindful indulgence and premium gifting, supporting price realization and long-term revenue.
  
• Leadership in sustainability and ethical sourcing, combined with disciplined cost management initiatives in logistics and procurement, enhances Lindt's premium positioning, reduces long-term reputational risk, and helps protect operating profit growth over time.

Valuation

• The assumed bearish price target for Chocoladefabriken Lindt & Sprüngli is CHF97000.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Chocoladefabriken Lindt & Sprüngli's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF147000.0, and the most bearish reporting a price target of just CHF97000.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CHF6.6 billion, earnings will come to CHF845.7 million, and it would be trading on a PE ratio of 0.0x, assuming you use a discount rate of 3.8%.
• Given the current share price of CHF119400.0, the bearish analyst price target of CHF97000.0 is 23.1% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.