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Analysts Bullish on General Mills

General Mills has definitely been one of the biggest beneficiaries of the economic downturn, and leading equity research analysts say they expect its growth to continue for some time.
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NEW YORK (

TheStreet

) -- Cheerios maker

General Mills

(GIS) - Get Report

has clearly been one of the biggest beneficiaries of the economic downturn, and leading equity research analysts announced today that they expect its growth to continue for some time.

Stifel Nicolaus announced today that it sees the continuation of General Mills' volume-driven "top-tier" sales growth and greater margin improvement despite the higher costs that will go into making its products in fiscal 2010.

"This has been the case since the start of fiscal 2006 and we expect a continuation of this trend -- General Mills is building some real consistency and we believe the stock does not reflect the improved operations of the past several years," writes Stifel analyst Christopher Growe, in a note released on Friday. "We believe the revelation of more consistent, top-tier growth for the business will accommodate a higher multiple of earnings and EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)."

Stifel Nicolaus's maintains a buy rating for the company and has set its price target for General Mills at $76 per share. Growe writes that the risk to achieving the price target includes a slowdown at the company's U.S. retail division, which Stifel analysts believe is the "linchpin" of the company's success.

On Thursday, General Mills reported that its fiscal second quarter earnings' jumped 50% to $565.5 million or about $1.70 per share. Excluding mark-to-market gains on some assets, its profit was about $1.50 per share. Meanwhile, its sales increased 2% to about $4.1 billion.

As price-conscious families sought out cheap, yet nutritious meals, revenue from General Mills' Big G cereal line rose 10% in the quarter ending Nov. 29. The company saw better sales of Chex, Cheerios and Fiber One in the quarter.

"More people are eating at home in the recession to save money, and meals outside of breakfast more often include cereal, said Jack Russo," an analyst for Edward Jones.

General Mills also boosted its ad spending by 37% in the quarter, which Christopher Shanahan, a research analyst with Frost & Sullivan said is a sign it is confident the business can keep growing.

Last Monday, General Mills raised its quarterly dividend to 49 cents a share from 47 cents a share, making it the second time the company increased its dividend payout in the fiscal year.

General Mills stock has gained 1.2% at $69.80 on Monday afternoon, while

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-- Reported by Andrea Tse in New York

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