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Does Recent Decline Make Kellogg Stock Attractive?

Amit Singh - Author
By

Nov. 27 2018, Updated 2:46 p.m. ET

Kellogg stock is down 18% since mid-September

Kellogg stock (K) has fallen about 18% since mid-September as weak organic sales and sluggish margins didn’t sit well with investors. Most of the decline in Kellogg’s stock price followed the company’s soft third-quarter results. Adding to its woes, management lowered the full-year EPS growth guidance, citing an adverse mix, continued cost pressure, and increased interest expenses. On a YTD basis, Kellogg stock has fallen 9.5% and has underperformed the broader markets (SPY). The S&P 500 Index remained flat during the same period.

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Other major food stocks also disappointed investors so far this year and eroded a significant amount of value. For instance, Kraft Heinz (KHC) and General Mills (GIS) are down 34.3% and 28.5%, respectively, on a YTD basis. Meanwhile, Campbell Soup (CPB), Conagra Brands (CAG), and J.M. Smucker (SJM) stocks have also seen double-digit declines on a YTD basis.

What to expect

Despite the recent decline, Kellogg’s stock doesn’t seem attractive as sales and margins headwinds could hurt the company and restrict the stock’s upside. Kellogg’s net sales are expected to benefit from incremental sales from its recent acquisitions. However, the company’s organic sales are likely to remain soft. Meanwhile, lower pricing, an adverse mix, and higher raw material and packaging costs are projected to hurt margins.

Kellogg’s bottom line is expected to see YoY growth. However, the rate of growth could take a hit from weak underlying sales, sluggish margins, and increased interest expenses.

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