With shares of General Mills (NYSE:GIS) trading at around $48.33, is GIS an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock's Movement
You ate Cheerios as a baby. When you were a little older, you sifted through Lucky Charms in order to make sure all the marshmallows were saved for last. It was so delicious that you had to go for a second bowl. Maybe even a third bowl! A little later in life, you ate Wheaties because it was the breakfast of champions. For sweet treats, you dreamed of Pillsbury cake or Betty Crocker brownies. Salivating yet?
There are two points here. One, General Mills has many quality brands to its name. Two, many of these brands are household names. When brand recognition is that strong, future prospects are good. But this is far from the only positive.
NEW! Discover a new stock idea each week for less than the cost of 1 trade. CLICK HERE for your Weekly Stock Cheat Sheets NOW!Revenue has consistently improved on an annual basis, and 2012 was especially impressive. Looking at the last quarter on a year-over-year basis, revenue increased 12.20 percent. Earnings declined 11.40 percent, but there fluctuations should be expected. What's most important is that General Mills consistently delivers profits. General Mills has increased its dividend for 10 consecutive years and buybacks are commonplace. Actually, General Mills plans on returning more cash to shareholders in the near future.
In regards to company culture, it's very strong. According to Glassdoor.com, employees have rated their employer a 4.0 of 5, and 88 percent of employees would recommend the company to a friend. The leadership is even more impressive as 95 percent of employees approve of CEO Ken Powell.
There has to be a substantial negative somewhere! What about analysts? Nope, you won't find many negatives there. Analysts like the stock: 12 Buy, 7 Hold, 1 Underperform.
But is the stock resilient in bear markets? Yes. General Mills dropped approximately 20 percent in 2008/2009, which was nothing compared to the drops most stocks throughout the broader market. Most investors would have popped open a bottle of champagne to celebrate if their top holding dropped 20 percent at that time. Kellogg Company (NYSE:K) also dropped approximately 20 percent at the time. However, ConAgra Foods dropped approximately 40 percent.
Currently, General Mills is trading at 18 times earnings whereas Kellogg is trading at 25 times earnings, and ConAgra is trading at 28 times earnings. General Mills has the most impressive margins of the three. For example, General Mills has a profit margin of 10.41 percent whereas Kellogg has a profit margin of 6.30 percent, and ConAgra has a profit margin of 3.48 percent. General Mills is a winner another area, which is yield. General Mills currently yields 3.20 percent whereas Kellogg yields 2.80 percent, and ConAgra yields 3.00 percent.
General Mills recently upped its FY 2013 adjusted EPS forecast to $2.68-$2.69 from $2.66-$2.68. Growth expectation for 2014 was also maintained at the high single-digit range.
Believe it or not, there are negatives for General Mills. The listed negatives have been increased competition, high commodity prices, and volume pressures due to high prices. However, looking at those a little closer, there is really only one negative that's cause for concern, which is high prices.
Many public and private companies have been laying off employees in order to improve their bottom lines. This has to be done because top-line growth is suffering in many cases. In some situations, employees are asked to take a pay cut. Either way, this leads to a weaker consumer. Some consumers will opt for more generic brands that will allow them to cut their own costs. That said, General Mills customers tend to be loyal.
As far as increased competition goes, General Mills has proven it can handle all threats for many decades. And when it comes to commodity prices, they're only heading in one direction, which is down. This is good news because it will cut costs for General Mills, but it's also bad news because it signifies a decline in global demand in many areas.
Let's take a look at some important numbers prior to forming an opinion on this stock.
T = Technicals Are Mixed
General Mills has been a solid performer over the past three years, but the past month has been subpar.
| 1 Month | Year-To-Date | 1 Year | 3 Year | |
| GIS | -3.19% | 21.32% | 30.54% | 39.93% |
| K | -1.14% | 14.64% | 33.85% | 27.81% |
| CAG | -2.41% | 17.04% | 38.73% | 50.55% |
Looking at the last quarter on a year-over-year basis, General Mills is trading below its 50-day SMA, but still above its 200-day SMA.
| 50-Day SMA | 49.37 |
| 200-Day SMA | 45.42 |
E = Equity to Debt Ratio Is Normal
The debt-to-equity ratio for General Mills is close to the industry average of 0.80. It’s much stronger than the debt-to-equity ratio for the peers listed below.
| Debt-To-Equity | Cash | Long-Term Debt | |
| GIS | 0.95 | 751.20M | 8.06B |
| K | 2.66 | 252.00M | 7.56B |
| CAG | 2.07 | 723.80M | 10.68B |
E = Earnings Have Been Steady
Earnings dropped in 2012, but that number was still an improvement over 2009 and 2010. As far as revenue goes, it has consistently improved on an annual basis.
| Fiscal Year | 2009 | 2010 | 2011 | 2012 |
| Revenue ($) in millions | 14,691 | 14,797 | 14,880 | 16,658 |
| Diluted EPS ($) | 1.90 | 2.24 | 2.70 | 2.35 |
Looking at the last quarter on a year-over-year basis, revenue and earnings both improved.
| Quarter | May. 31, 2012 | Aug. 31, 2012 | Nov. 30, 2012 | Feb. 28, 2013 |
| Revenue ($) in millions | 4,066.40 | 4,051 | 4,881.80 | 4,430.60 |
| Diluted EPS ($) | 0.49 | 0.82 | 0.82 | 0.60 |
Now let's take a look at the next page for the Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?
Conclusion
General Mills has proven that it can grow and deliver profits during good economic times, and that it can weather any storms during bad economic times. All the while, investors collect generous dividend payments.
No comments:
Post a Comment