Kellogg and General Mills have quietly beat the Dow Jones Industrial Average in the past 12 months. An analyst at Citi Research sees even more upside for both.
Citi Research’s Wendy Nicholson launched coverage on firms in a note titled “More than Just Cereal Titans.” Indeed, both are known for their portfolios of sugary cereals, but have expanded to broader food categories, she notes.
Nicholson evaluated the two companies on 13 measures to see how they stack up. She said Kellogg (ticker: K) had the edge in organic sales growth, portfolio mix, geographic breakdown, profit margins, distribution strategy, and marketing investment. General Mills (GIS) came out ahead on new business development, free cash flow/capital expenditures/capital allocation, leverage, governance, and stock price performance. The Covid-19 impact and valuation categories were a tie.
“Through this analysis, we find that there are two draws, while K bests GIS on six metrics while GIS wins just five,” she wrote. “In other words, this was a very close match up.”
She initiated coverage on Kellogg with a Buy rating and a $79 price target. That represents 12% upside from recent levels. The stock ticked up 0.1% on Friday to $70.54.
“To the extent K’s market share performance improves in coming quarters as reinvestment initiatives have impact, we think K has room to make up for some of the weakness in its share price YTD,” she wrote.
She gave General Mills a Neutral rating, but her $70 price target reflects 10% upside from its close on Friday. The stock fell 2% to $63.39 on Friday. She noted that premium pet food—especially its Blue Buffalo brand that's thrived via e-commerce sales—has benefitted from the pandemic.
“And, GIS has also gained market share in several of its core categories owing to superior execution throughout the pandemic,” she added. “As a result, GIS’s revenue growth in Nielsen-measured channels has been especially strong of late (double-digits in each of the last 5 months).”
But with the stock’s run in recent months, she argued the valuation largely reflected the strong performance. Kellogg is up 12.3% in the past 12 months, while General Mills is up 17.8%. The Dow Jones Industrial Average has gained 8.5% in the period.
Write to Connor Smith at connor.smith@barrons.com
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August 29, 2020 at 07:30PM
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Why Kellogg and General Mills Stock Have Room to Run - Barron's
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