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Why Analysts Lowered Price Targets on GIS after Fiscal 3Q18

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Mar. 23 2018, Updated 9:32 a.m. ET

Cost pressure remains a concern

Multiple analysts lowered their price targets on General Mills (GIS) stock after its better-than-expected fiscal 3Q18 results. General Mills sustained its sales momentum and marked YoY (year-over-year) improvement in sales and profitability.

The company’s top line benefited from improved performance of its new products. Higher net price realization and favorable currency rates further supported its top-line growth. The company’s bottom line gained from lower tax rates and share repurchases.

Analysts and investors were concerned by the mounting cost pressure on General Mills’s margins, which is expected to affect its earnings growth rate in fiscal 2018. The company’s management lowered its operating profit guidance and expects a year-over-year decline in its operating profit.

The company anticipates higher-than-expected cost pressure from the inflation in commodities and transportation costs. Moreover, General Mills lowered its EPS (earnings per share) growth forecast for 2018, which didn’t sit well with the analysts.

Following the company’s tepid outlook and near-term margin headwinds, RBC reduced its price target on GIS stock to $52.00 per share from $60.00. Credit Suisse lowered its target price to $46.00 from $55.00. Susquehanna lowered its price target to $51.00 from $57.00.

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Ratings and price target summary

Of the 20 analysts providing recommendations on General Mills stock, 80.0% suggested a “hold” rating. Meanwhile, 15.0% had a “buy” rating, and 5.0% recommended a “sell.”

The chart above shows that the analysts have lowered their price targets on GIS stock. Analysts maintain a target price of $52.39, which is 15.1% above its closing price of $45.51 on March 21, 2018.

Similar to General Mills, analysts also maintained a neutral outlook on Campbell Soup (CPB), Hershey (HSY), Kellogg (K), and J.M. Smucker (SJM) stock.

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