While we’re impressed with the continued strength in the Mondelēz’s (MDLZ) base business, its low growth expectation makes us skeptical. We expect Mondelēz to continue to drive organic sales on the back of higher volumes and pricing. Meanwhile, cost savings and a lower effective tax rate are expected to support its earnings. However, its EPS are expected to mark mid-single-digit growth in 2019 and 2020, making its current valuation unattractive.
Mondelēz faces tough YoY (year-over-year) comparisons, which are likely to restrict its sales and EPS growth rate. Meanwhile, adverse currency rates remain a drag.
Mondelēz stock is trading at 22.1 times its 2019 estimated EPS of $2.50 and 20.5 times its 2020 estimated EPS of $2.69—both of which look expensive based on its projected EPS growth of 3% and 8%, respectively, in 2019 and 2020.
Moreover, Mondelēz stock is trading ~7% higher than its four-year average historical multiple of 20.4x.
Mondelēz stock is trading at a significant premium to its peers. Mondelēz stock’s forward PE multiple is ~34% higher than the peer average of 16.5x.
Shares of Conagra Brands (CAG), the J.M. Smucker Company (SJM), the Kellogg Company (K), the Campbell Soup Company (CPB), and General Mills (GIS) are trading at forward PE multiples of 13.9x, 14.3x, 14.4x, 16.1x, and 16.4x, respectively. Meanwhile, the Hershey Company (HSY) stock is trading at a forward PE multiple of 23.6x, which also looks expensive given the projected mid-single-digit growth in its 2019 EPS.