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BMO Capital Markets Raised General Mills’ Price Target

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Price movement of General Mills

General Mills (GIS) has a market cap of $36.4 billion. GIS rose by 0.57% to close at $61.36 per share on March 24, 2016. The price movements on weekly, monthly, and year-to-date (or YTD) bases were -0.68%, 4.1%, and 7.3%, respectively.

Currently, GIS is trading 1.5% above its 20-day moving average, 6.0% above its 50-day moving average, and 8.0% above its 200-day moving average.

The PowerShares High Yield Equity Dividend Achievers Portfolio ETF (PEY) invests 1.6% of its holdings in General Mills. The ETF aims to track a yield-weighted index of US companies that have increased their annual dividend for at least ten consecutive years. The YTD price movement of PEY was 6.1% as of March 23, 2016.

The market caps of General Mills’ competitors are as follows:

  • Post Holdings (POST): $4.3 billion
  • Kellogg Company (K): $26.6 billion
  • Hershey Company (HSY): $14.0 billion
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BMO Capital Markets raised General Mills’ price target

BMO Capital Markets has raised the price target of General Mills to $60 from $56 per share and maintained its “market perform” rating due to a rise in net income in fiscal 3Q16.

Performance of General Mills in fiscal 3Q16

General Mills reported fiscal 3Q16 net sales of $4,002.4 million, a fall of 8.0% compared to net sales of $4,350.9 million in fiscal 3Q15. Sales of the US retail, international, and convenience stores and food service segments fell by 6.6%, 13.1%, and 2.4%, respectively, in fiscal 3Q16 compared to fiscal 3Q15. The company’s cost of sales as a percentage of net sales fell by 2.9%, and its operating profit rose by 9.1% in fiscal 3Q16 compared to fiscal 3Q15. It reported a gain on divestitures of $1.5 million in fiscal 3Q16.

Its net income and EPS (earnings per share) rose to $361.7 million and $0.59, respectively, in fiscal 3Q16, compared to $343.2 million and $0.56, respectively, in fiscal 3Q15.

General Mills’ cash and cash equivalents and inventories fell by 0.19% and 14.8%, respectively, in fiscal 3Q16 compared to fiscal 3Q15. Its current ratio and debt-to-equity ratio rose to 0.76x and 3.0x, respectively, in fiscal 3Q16 compared to 0.67x and 2.9x, respectively, in fiscal 3Q15.

In the company’s earnings report it said, “On March 16, 2016, General Mills sold its General Mills de Venezuela CA subsidiary to a third party and exited its business in Venezuela. The company expects to incur a non-cash charge of ~$35 million pretax in the fiscal 4Q16.”

The price-to-earnings and price-to-book value ratios of General Mills are 25.4x and 7.7x, respectively, as of March 24, 2016.

Projections

The company has made the following projections for fiscal 2016:

  • Net sales are expected to decline at a low-single-digit rate on a constant currency basis.
  • Operating profit is expected to be the same as last year on a constant currency basis.
  • Adjusted EPS growth is expected to be at a low single-digit rate on a constant currency basis.

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