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General Mills Stock Drops ~6% on Goldman Sachs Downgrade

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The expected deceleration in sales growth

Goldman Sachs downgraded General Mills (GIS) stock to “sell” from “neutral.” After the downgrade, the stock was trading about 6% lower in the morning trade on Wednesday, May 29. In our previous series, General Mills: Analyzing the Stock Performance and Outlook, we pointed out that General Mills’ top-line growth rate is projected to decelerate in coming quarters. Moreover, continued pressure on margins further remains a drag. Citing the expected slowdown in sales, Goldman Sachs downgraded General Mills stock.

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General Mills faces tough YoY comparisons in fiscal 2020, which is likely to restrict the sales growth rate. Meanwhile, weakness in organic volumes could further hurt sales. However, higher net price realization and favorable product mix are likely to support net sales. Wall Street expects General Mills’ top line to mark low-single-digit growth in fiscal 2020.

General Mills’ bottom line is expected to stabilize in coming quarters. However, continued pressure on margins from inflation in input and transportation costs and increased interest expenses could limit the earnings growth rate.

Recommendation and price target

Among the 17 analysts providing ratings on General Mills, 11 suggest a “hold,” four recommend a “buy,” and two analysts have a “sell.” The consensus target price of $50.47 per share implies a downside of about 1% based on its closing price of May 28.

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