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Why Susquehanna and Société Générale Upgraded General Mills


Mar. 26 2018, Updated 8:06 a.m. ET

Compelling valuation, improving sales trend

General Mills (GIS), which has fallen ~11.5% as of March 23, 2018, posted its fiscal 3Q18 earnings results on March 21. The stock found some relief as a couple of analysts upgraded it, citing compelling valuations and an improving sales trend.

Analyst Pablo Zuanic at Susquehanna upgraded General Mills stock to a “positive” from a “neutral” rating and increased its price target to $53 from $51 per share. Zuanic finds General Mills’ food portfolio attractive, especially considering its high-margin Blue Buffalo acquisition. Moreover, given the stock’s recent pullback following its third-quarter results, the analyst added that it’s trading at a “compelling 8.3% FCF yield and offers a dividend yield of 4.4%.”

Besides Susquehanna, analysts at Société Générale also upgraded General Mills stock to a “hold” from a “sell,” citing the company’s sustained sales momentum, which improved its top line trend.

General Mills’ top line is benefiting from new product launches. Meanwhile, its yogurt sales continue to decline, but the rate of decline is slowing given the improved performances of new products and flavors.

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Multiple analysts lowered price target

In contrast to Susquehanna and Société Générale, numerous analysts lowered their price targets on General Mills stock, citing increased cost pressure, which is likely to hurt its margins in the coming quarters. Analysts expect higher-than-expected inflation in commodities and transportation costs to hurt General Mills’ profitability going forward. Soft sales and the steep price GIS paid for the Blue Buffalo acquisition have further dented investors’ sentiments.

UBS lowered its target price on General Mills stock to $48 from $58. Meanwhile, BMO lowered its price target to $51 from $60. Also, Stifel reduced its target price on GIS stock to $48 from $57 per share, and Citigroup lowered its target price by ~12% to $61. Deutsche Bank reduced its price target 11% to $49.

Jefferies lowered its target to $55 from $65, and RBC reduced its target to $52 from $60.

Rating summary

Of the 20 analysts that follow General Mills, 75.0% have recommended “holds” on GIS stock. Meanwhile, 20.0% have suggested “buys,” and 5.0% have maintained “sells.” On average, analysts have recommended a target price of $50.06 per share on General Mills, which reflects an upside potential of 13.2% to its closing price of $44.21 on March 23, 2018.


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