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How Kellogg Compares to Its Peers on Valuation

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Current valuation remains low

As of August 4, 2017, The Kellogg Company (K) stock was trading at a 12-month forward PE (price-to-earnings) multiple of 17.2x. It means that the company’s stock is trading at a lower valuation ratio than the S&P 500 Index’s (SPX) forward PE ratio of 18.1x. Kellogg is also trading at a lower PE ratio than its peers, as you can see in the following graph.

Kellogg’s valuation multiple remains lower than our select peer group’s average of 20.3x. As of August 4, General Mills (GIS), Conagra Brands (CAG), Mondelēz (MDLZ), Hershey (HSY), and Kraft Heinz (KHC) stock was trading at forward PE multiples of 18.1x, 18.2x, 20.7x, 21.3x, and 23.0x, respectively.

Note that the PE valuation ratio tends to differ among companies based on several factors—the company’s capital structure, growth expectation, leverage, and profitability.

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Growth expectations

Analysts expect the company’s revenue to fall 2.4% in 2017. Weak consumer demand and increased competition will likely impact the company’s top-line performance. Management projects a 3% fall in sales for 2017 on a constant currency basis. The company’s 2H17 results are expected to benefit from Pringles’ return to growth in Europe and innovative products. Besides, a healthy performance in emerging markets will supplement sales growth. However, weak consumption trends in North America and increased competition will play spoilsport.

The company expects currency fluctuations to have less of an impact on its 2017 EPS than previously expected. Now, it projects the adjusted EPS to be $3.97–$4.03 for 2017. Kellogg’s focus on productivity and cost savings through the Project K program and ZBB initiatives will likely drive it profitability growth. Analysts expect its EPS to rise 6.2% in 2017.

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