NEW YORK (TheStreet) -- Shares of General Mills (GIS) - Get General Mills, Inc. (GIS) Report were downgraded to "market perform" from "outperform" today at BMO Capital Markets. The firm has a $56 price target on the stock.
"Our overarching view on GIS remains largely unchanged, as GIS remains a stable investment in light of its ability to leverage its cash flow, adjust its portfolio to adapt to the more challenging environment, and realign its infrastructure with the current operating environment," BMO Capital Markets said.
However, the near-term stock upside "may be limited," as General Mills' stock price better reflects its accelerated cost-savings program, recovery in yogurt sales, and return of cash flow to shareholders, analysts noted.
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Over the past two years, the stock has "modestly underperformed" the S&P, 32% versus 36% for the S&P 500, though its P/E and EV/EBITDA multiple have expanded to more than 17.5x and 12x, respectively, which is a 10% to 20% premium to its five-year historical average, analysts said.
The greatest risks to BMO Capital Markets' downgrade are that the U.S. operating environment, particularly U.S. RTEC, improves more quickly than expected, General Mills does not invest costs savings into growth but allows margins to expand, and increased corporate activity across the U.S. food sector, analysts added.
General Mills stock closed down 1.87% at $54.08 yesterday.
Separately, TheStreet Ratings team rates GENERAL MILLS INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:
"We rate GENERAL MILLS INC (GIS) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its solid stock price performance, expanding profit margins, reasonable valuation levels and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
- 37.73% is the gross profit margin for GENERAL MILLS INC which we consider to be strong. Regardless of GIS's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 7.34% trails the industry average.
- GENERAL MILLS INC's earnings per share declined by 33.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, GENERAL MILLS INC increased its bottom line by earning $2.83 versus $2.79 in the prior year. This year, the market expects earnings to be in line with last year ($2.83 versus $2.83).
- GIS, with its decline in revenue, slightly underperformed the industry average of 2.0%. Since the same quarter one year prior, revenues slightly dropped by 3.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: GIS Ratings Report