On Wednesday, CFRA made a notable adjustment to General Mills (NYSE: NYSE:GIS) stock, upgrading the rating from Sell to Hold and increasing the stock price target to $76 from the previous $60. The revision follows General Mills' recent financial performance and market analysis.
The analyst from CFRA cited a positive shift in earnings per share (EPS) forecasts for the upcoming fiscal years, raising the FY 25 EPS view to $4.76 from $4.60 and FY 24's estimate to $4.70 from $4.56.
This adjustment is based on a multiple of 16 times the FY 25 EPS view, contrasting with the long-term average of 17 times. The upgrade is further supported by General Mills' FQ3 adjusted EPS of $1.17, which outperformed expectations by $0.12 and marked a 21% year-over-year increase.
Despite a 1% year-over-year decline in organic sales, the company experienced a sequential improvement in volumes from FQ2, with a less severe contraction of -2% compared to -4%. Moreover, the pricing growth slowed to +2% compared to +3% in the previous quarter.
A key positive development was the recovery in the Pet segment, where volumes decreased by 5% year-over-year versus a more significant 11% drop in FQ2. North America Retail volumes also saw a sequential improvement.
The analyst expects volumes to turn positive in the coming quarters, as General Mills begins to overcome two major challenges from the previous year: the reduction of the Supplemental Nutrition Assistance Program (SNAP) benefits from March 2023 and improved product availability from competitors.
The company's cost-saving measures have been robust and are anticipated to persist into FY 25. Still, the return of incentive-based compensation in FY 25 is likely to limit EPS growth.
While sales and margins are trending positively, CFRA maintains a cautious outlook for FY 25, anticipating it to be a year that may not fully align with the company's long-term growth algorithm.
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