Stock of the Day

July 10, 2023

General Mills (GIS)

$32.87
+$0.76 (+2.4%)
Market Cap: $17.17B

About General Mills

General Mills, Inc. manufactures and markets branded consumer foods worldwide. The company operates through four segments: North America Retail; International; Pet; and North America Foodservice. It offers grain, ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, bakery flour, frozen pizza and pizza snacks, snack bars, fruit and savory snacks, ice cream and frozen desserts, unbaked and fully baked frozen dough products, frozen hot snacks, ethnic meals, side dish mixes, frozen breakfast and entrees, nutrition bars, and frozen and shelf-stable vegetables. The company also manufactures and markets pet food products, including dog and cat food; and operates ice cream parlors. It markets its products under the Annie's, Betty Crocker, Bisquick, Blue Buffalo, Bugles, Cascadian Farm, Cheerios, Chex, Cinnamon Toast Crunch, Cocoa Puffs, Cookie Crisp, Dunkaroos, Edgard & Cooper, Fiber One, Fruit by the Foot, Fruit Gushers, Fruit Roll-Ups, Gardetto's, Gold Medal, Golden Grahams, Häagen-Dazs, Kitano, Kix, Lärabar, Latina, Lucky Charms, Muir Glen, Nature Valley, Nudges, Oatmeal Crisp, Old El Paso, Pillsbury, Progresso, Tastefuls, Total, Totino's , Trix, True Chews, True Solutions, Wanchai Ferry, Wheaties, Wilderness, and Yoki brands. The company sells its products to grocery stores, mass merchandisers, membership stores, natural food chains, drug, dollar and discount chains, e-commerce retailers, commercial and noncommercial foodservice distributors and operators, restaurants, convenience stores, and pet specialty stores. General Mills, Inc. was founded in 1866 and is headquartered in Minneapolis, Minnesota.

General Mills Bull Case

Here are some ways that investors could benefit from investing in General Mills, Inc.:

  • General Mills, Inc. offers a compelling dividend yield of 7.67%, which is significantly higher than many other consumer staple stocks, providing a strong income stream for investors seeking regular cash flow from their portfolio.
  • The company recently completed cash tender offers for seven series of senior notes totaling up to $750 million, a move that demonstrates a strategic focus on reducing debt and strengthening the balance sheet, which can improve long-term financial stability and creditworthiness.
  • General Mills, Inc. shares are currently trading at $32.06, a price that is near its 52-week low of $31.17, suggesting that the stock may be undervalued relative to its historical trading range and offering a potential entry point for value-oriented investors.
  • Despite recent earnings pressure, the company reported $0.75 EPS for the most recent quarter, beating the consensus estimate of $0.72, indicating that management is effectively executing on cost savings and operational efficiencies to support profitability.
  • General Mills, Inc. maintains a low beta of 0.03, meaning its stock price is largely uncorrelated with broader market movements, which can provide a defensive characteristic for investors looking to reduce portfolio volatility during market downturns.

General Mills Bear Case

Investors should be bearish about investing in General Mills, Inc. for these reasons:

  • The stock has experienced a significant decline, falling approximately 13% in the past month and 39.8% over the past three years, reflecting persistent concerns about weak demand and earnings pressure that have eroded investor confidence.
  • General Mills, Inc. has a high debt-to-equity ratio of 1.66, indicating a substantial level of leverage that could limit the company's financial flexibility and increase its vulnerability to rising interest rates or economic downturns.
  • The company's revenue has declined 2.8% year-over-year in the most recent quarter, signaling a challenging demand environment that may continue to pressure top-line growth and overall profitability in the near term.
  • Analysts have issued a consensus rating of "Reduce" with an average price target of $36.59, suggesting that while the stock may be undervalued, the broader market sentiment remains cautious due to ongoing earnings challenges and competitive pressures.
  • General Mills, Inc. has a negative net margin of 4.89% in the most recent quarter, indicating that the company is not generating sufficient profit from its operations to cover its costs, which could raise concerns about the sustainability of its earnings and dividend payments.

General Mills Retreats To The Buy Zone  

Written By Thomas Hughes on 6/28/2023

 General Mills stock price forecast dividend

General Mills (NYSE: GIS) retreated following the Q4 results and guidance marking an opportune time to buy the stock. The retreat is due to mixed results and guidance that left investors wanting more, but there is a bigger story. While tepid, the guidance calls for growth in a high-quality dividend growth stock that also increased its dividend.

The Q4 dividend increase is worth nearly 10% to investors and is an attraction all its own. The stock yields more than 2.7% following the sell-off, and it trades at a relatively low valuation for a consumer staple stock, which makes it attractive as sleep-at-night stock too.

The question is whether the market will support the stock at critical levels or if this retreat will pull back to even more attractive levels. 

One reason to believe the market will support the stock is the institutions. The institutions own about 77% of the stock, influencing the market. They’ve been buying on balance for the last year, and the peaks and troughs in their activity are in synch with the recent price movement.

The institutional buying peaked in Q1 2023 when the stock price was trading near $76 and a critical break-out point set in 2022, and then they started selling on balance in Q2. That activity is timed perfectly with the recent top, and now shares are back near $76. Assuming the institutions step up to buy as they have in the past, the stock could rebound strongly from this level. 

General Mills Falls On Mixed Results And Guidance 

General Mills had a mixed quarter relative to the analysts' expectations, but that is the worst that can be said. The company reported $5.03 billion in net revenue for a gain of 2.9% compared to last year. The revenue is driven by pricing increases offset by volume declines and missed the Marketbeat.com consensus by 300 basis points.

All segments were affected by volume decline except the US Foodservice business; all segments were buoyed by higher pricing, and most saw margins better than expected. On an organic basis, revenue is up 5%, driven by a 6% decline in volume and a 10% price increase. FX shaved 100 bps off the result. 

The margin news is mixed but ultimately bullish for the stock. The gross and operating margins contracted YOY, but the adjusted margin expanded. The adjusted gross margin widened by 120 bps to 35% and was only partially offset by an increase in SG&A.

Likewise, the GAAP EPS is down YOY but better than expected. At the same time, the adjusted $1.12 is up 1% YOY and is also better than expected. 

Guidance is equally mixed but skewed in favor of margin and earnings potential. The company expects 2024 revenue to grow by 2% to 4% and adjusted earnings by 4% to 6%. These ranges put the revenue slightly below the consensus figure and the mid-point of earnings well above, which is good news for the balance sheet, the cash flow, and the dividend.

The company pays out about 50% of its earnings with earnings growth in the picture, so it should be able to sustain another high-single to low-double-digit dividend increase next year. 

The Analysts Will Tip The Scale For General Mills

The analysts have supported General Mills all year with newly initiated coverages and an upwardly trending price target. The current consensus is up compared to last quarter and last year and implies about 5% of the upside from the pre-release price point. The high price target of $96, among the most recently set, is another 15% above that.

If this trend changes, the stock could be capped; if not, it’s another factor favoring a strong rebound. 

General Mills' uptrend is still intact but is in danger of breaking. The post-release action has the market down near trend, so a move lower could snap upward momentum. If not, this market should regroup quickly and rebound with a chance of retaking the all-time high, consistent with the analysis outlook. 

General Mills stock price chart

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