Mondelēz Stock Looks Expensive



Factors that could limit Mondelēz’s growth

Mondelēz (MDLZ) stock had risen 18.3% this year as of yesterday. Its base business’s continued strength, driven by balanced pricing and volume growth, impressed investors. Mondelēz is among the very few food companies whose margins have expanded amid heightened cost pressure.

Mondelēz’s adjusted gross margin expanded by 90 basis points during its last reported quarter, and its adjusted operating margin expanded by 50 basis points. Its improved organic sales and margin expansion grew its adjusted EPS by a double-digit percentage last year, and its EPS benefited from a lower effective tax rate.

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We expect Mondelēz’s organic sales to maintain their momentum, and cost savings to support its margins and EPS. However, currency volatility and tough YoY (year-over-year) comparisons could limit sales and earnings growth, and the stock’s current valuation looks unattractive. Mondelēz stock is trading at 19.1 times its estimated 2019 EPS of $2.48, which is expensive considering its projected growth of ~2%.

Analysts’ ratings and target price

Of the 20 analysts covering MDLZ stock, 15 recommend “buy,” and five recommend “hold.” Their average target price of $49.67 for MDLZ implies a 4.9% upside based on its March 14 closing price of $47.35.

In comparison, most analysts recommend “hold” for Hershey (HSY) stock. Hershey’s top and bottom line growth is projected to remain low as the company annualizes benefits from its recent acquisitions. Although its tax rate is expected to stay low, it likely won’t boost earnings as it did last year.


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