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This Could Stall the Uptrend in General Mills Stock

Amit Singh - Author
By

Aug. 18 2020, Updated 4:45 a.m. ET

GIS stock is up 19.6%

Shares of General Mills (GIS) were up 19.6% year-to-date as of February 22, outperforming most of the company’s peers. Kraft Heinz (KHC), Campbell Soup (CPB), and Kellogg (K) are down 18.8%, 0.5%, and 0.5%, respectively. J.M. Smucker (SJM), Conagra Brands (CAG), Hershey (HSY), and Mondelēz (MDLZ) are up 8.5%, 9.5%, 2.8%, and 19.2%.

General Mills’ low valuation, high dividend yield and improved performance on the profitability front drove its stock higher.

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Outlook

We expect General Mills to sustain its top-line growth momentum in the coming quarters, reflecting its acquisition of Blue Buffalo. However, organic sales could remain weak, hurting the stock. Management expects higher pricing, distribution gains, new product launches, and brand investments to drive organic sales. But the company’s base business remains challenged with lower organic volumes.

The graph above shows that General Mills has missed analysts’ sales estimates in the past three quarters.

Higher pricing, an improved mix, benefits from the acquisition of Blue Buffalo, and cost savings are expected to support the company’s margins. But increased input and logistics costs could continue to hurt margins.

General Mills’ bottom line is expected to decline in fiscal 2019, reflecting softness in its base business and a higher interest burden. A higher outstanding share count remains a drag, too.

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