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Mondelēz Stock: What to Expect after Q1

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Dec. 4 2020, Updated 10:42 a.m. ET

Valuation could limit the upside

Continued strength in Mondelēz’s (MDLZ) base business is expected to support its stock in the near term. Mondelēz managed to improve its organic sales due to higher volumes and pricing. The company’s profit margins continued to expand despite pressure on the margins from currency and cost headwinds.

We expect Mondelēz to maintain the momentum in the base business due to improved net revenues later in the year. However, Mondelēz stock has risen 27.0% in 2019 and trades at a forward PE ratio of 20.1x, which is on par with its historical average. The stock looks expensive given the low earnings growth rate.

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Analysts expect Mondelēz to post an adjusted EPS growth of 2.4% in 2019. The company’s bottom line is projected to increase 7.7% in 2020. The high valuation and persisting challenges could limit the upside in the stock.

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Rating and target price

Among the 20 analysts covering Mondelēz stock, 15 recommended a “buy” due to consistent organic sales growth and margin expansion. Five analysts recommend a “hold.” Credit Suisse raised the target price to $59 from $50 per share after the company’s first-quarter earnings beat.

Analysts have a consensus target price of $54.12 per share on Mondelēz, which implies an upside of 6.4% based on its closing price of $50.85 on April 30.

Besides Mondelēz, analysts maintained a “buy” on Conagra Brands (CAG) stock in the packaged food industry. Analysts recommended a “hold” on General Mills (GIS), J.M. Smucker (SJM), and Kellogg (K) stock.

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