On Thursday, TD Cowen adjusted its outlook on General Mills (NYSE:GIS) stock, reducing the price target to $65 from the previous $70 while maintaining a Hold rating. The adjustment follows General Mills' recent earnings report, where the company announced plans to ramp up investments aimed at increasing volume, a move that is expected to influence trading patterns in the broader food sector.
General Mills, often considered a leading indicator for the food industry, reported a fourth-quarter earnings per share (EPS) of $1.01, surpassing the forecasted $0.97. However, the company's organic sales fell short of expectations, showing a 6% decline. Despite this, the firm intends to designate fiscal year 2025 as a period of significant investment to stimulate volume growth, anticipating a flat EPS as cost savings are projected to offset inflationary pressures.
The decision to increase investment and the subsequent impact on EPS has led TD Cowen to reassess the value of General Mills shares. The lowered price target reflects concerns over the near-term financial performance as the company embarks on its investment strategy.
The market's reaction to General Mills' investment plans and its effect on other food stocks remains to be seen. Nevertheless, the company's commitment to boosting volume through increased investment marks a strategic move that could shape its performance in the upcoming fiscal year.
In other recent news, General Mills has unveiled its Q4 results, which presented a mixed financial picture. The company faced challenges in international markets, with a 10% drop in organic sales, particularly in Brazil and China. However, the company is optimistic about fiscal '25, with plans to increase brand communication and innovation spending, and a 20% rise in coupon spending to improve volume.
CEO Jeffrey Harmening expressed confidence in the company's market strategies, expecting equal contributions from price and volume to growth in 2025. The company also anticipates a modest expansion in gross margins, despite increased investment. Furthermore, General Mills has outlined capital allocation priorities that include internal investment for growth, dividend increases, and potential M&A in the $1 billion to $1.5 billion range.
InvestingPro Insights
As General Mills (GIS) sets its sights on investment-led growth, it's important for investors to consider the company's financial health and market position. According to InvestingPro data, General Mills boasts a solid market capitalization of $35.67 billion and trades at an appealing earnings multiple of 14.75, with an adjusted P/E ratio for the last twelve months as of Q3 2024 at an even more attractive 13.14. This indicates that the company may be undervalued compared to its earnings potential.
InvestingPro Tips highlight that management's confidence is reflected through aggressive share buybacks and a consistent track record of dividend payments, having raised its dividend for four consecutive years and maintained payments for an impressive 54 consecutive years. Additionally, while analysts have revised their earnings expectations downwards for the upcoming period, the company has been profitable over the last twelve months, and there is an anticipation of profitability this year as well.
For investors considering a deeper dive into General Mills' prospects, InvestingPro offers additional tips that could guide investment decisions. With a coupon code PRONEWS24, investors can receive an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking further insights. There are currently 8 additional InvestingPro Tips available for General Mills, which could provide a more nuanced understanding of the company's potential in the face of its new investment strategy.
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