The analysts, led by Bryan Spillane, raised their rating to buy from underperform. They expect the company from Battle Creek, Mich., to post organic sales growth of 2.3% in fiscal 2020, net sales growth of 0.1% and operating profit growth, excluding the Keebler divestiture, of 6%. Fiscal 2020 began Oct. 1.
The analysts also acted because Bank of America's equity strategists see a good chance that the market’s shift from growth stocks to value stocks will continue next year. Spillane and his colleagues lifted their 12-month price target for Kellogg to $75 from $53 previously.
That’s based on a multiple of 17.6 times their calendar-year 2021 earnings-per-share estimate of $4.26. This multiple is a 10% premium to the company’s peers, the analysts said.
“Kellogg has taken action to improve sales growth over the past two years, while profits have lagged,” the analysts wrote in a report. “We expect this to improve in 2020, as disruptive actions to drive growth have been taken, leaving more room to focus on restoring profitability.”
They like Kellogg’s “modest” valuation at 15.7 times estimated fiscal 2021 earnings, its “clean” balance sheet with a 3.3 debt-to-EBITDA ratio, and a “solid” dividend yield of 3.7%.
“While there is still work to do in U.S. cereal, we view Kellogg as well positioned to drive sustained low single-digit organic sales growth going forward,” the analysts wrote.
Kellogg stock traded at $68.42 on Friday, up 2.5%.