On Tuesday, Deutsche Bank adjusted its stance on Kellanova (NYSE: K), reducing the price target to $60 from the previous $62 while maintaining a Hold rating on the stock. Kellanova has been under scrutiny as the market sentiment for packaged food stocks faces challenges due to volume pressures, a perceived reduction in pricing power, and an increase in competition.
However, Deutsche Bank noted some positive aspects, including a slight improvement in US tracked channel volumes, which rose by 0.7% in the second quarter of 2024 compared to a 5.0% decline in the first quarter, and the potential for international expansion of key brands.
Despite these positive indicators, the bank highlighted several concerns for Kellanova. The company is expected to reaffirm its guidance, which includes over 3% organic growth, a gross margin above 35%, and an adjusted operating profit between $1.85 and $1.90 billion, along with an adjusted EPS of $3.55 to $3.65.
However, Deutsche Bank anticipates that Kellanova may adopt a more cautious approach for the second half of 2024 and the following fiscal year due to increased revenue and gross margin pressures.
These pressures include questionable returns on year-to-date investments in North America, persistent foreign exchange and inflationary challenges, and a potentially more difficult operating environment in Latin America and the AMEA region.
The bank also revised its earnings per share (EPS) estimate for Kellanova for the fiscal year 2024, lowering it to $3.63 from $3.66. This estimate is still slightly ahead of the consensus at $3.62 and at the higher end of the company's projected range. Looking ahead to fiscal year 2025, Deutsche Bank has decreased its EPS forecast from $3.92 to $3.85 due to the operating headwinds mentioned.
In conclusion, while acknowledging the fundamental opportunities that Kellanova may capitalize on, such as global capacity expansion and the international distribution of its Cheez-It brand, Deutsche Bank remains on the sidelines with a Hold rating.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.