With its product mix of cereal, snacks and other basic food items,

General Mills

(GIS) - Get General Mills, Inc. (GIS) Report

may not be the most exciting stock to own. But with a target of average earnings-per-share growth of 11% to 15% through 2010, a historical annual earnings growth rate of 12% over the past five years and an attractive 19.9 P/E, the company provides a long-term visibility that many technology companies simply cannot.

The General Mills File

Current P/E: 19.9

52-Week Range: $31.38- $46.35

Change From 52-Week High: -10.9%

Closing Price on April 5: $41.29

Source: Baseline, Morningstar

Food stocks have been one of the best-growing areas of the past year because of their necessity as a staple good and predictability as an investment, fund managers and analysts say. Earlier last month, for example, General Mills once again indicated steady strength when it reported earnings per share of 54 cents for the third fiscal quarter, up 3% from a year ago and beating the

Thomson Financial/First Call/

consensus of 52 cents.

The company, which recorded close to $7 billion in revenue in the four quarters ending in February, also told analysts on its earnings call that strong sales for its new milk and cereal bar "should help keep the momentum going" into fiscal 2002 and said it expected to deliver double-digit earnings-per-share growth for the full 2001 fiscal year ending in May

General Mills' market share and earnings could also rise following its acquisition of leading packaged-foods company

Pillsbury

for $10.5 billion from London-based consumer goods conglomerate

Diageo

(DEO) - Get Diageo plc Sponsored ADR Report

. Pillsbury offers a number of leading brands, including Green Giant, Progresso soups, Hungry Jack pancakes and Old El Paso Mexican foods. Pillsbury had sales of $5.9 billion in fiscal 1999 ended last June.

A Good Earnings Picture
General Mills has averaged 12% annual earnings growth per year over the last five years

Source: EDGARScan

General Mills' acquisition of Pillsbury was initially announced in July 1999 and is currently scheduled to close in May. The main stumbling block has been getting regulatory approval for the sale of Pillsbury's dessert business, including Haagen-Dazs, to

International Multifoods

(IMC)

. The

Federal Trade Commission

is trying to ensure that even after this sale, International Multifoods will be big enough to compete against General Mills in the dessert market.

Pillsbury will give General Mills a faster-growing mix of brands -- particularly in the salty snack, frozen, international and food service areas (the food service market supplies food to hospitals, schools, corporations and other institutional customers). Expanding General Mills' customer base will reduce the company's reliance on the lower-margin and more competitive cereal business from 40% of revenue to 20%. The acquisition will also give General Mills a bigger international and food service presence, says David Kathman, an analyst with

Morningstar.

Once the deal closes, GIS' international sales will more than double from 5% of total sales to 12%, while food service will grow from 7% of total sales to 14%, Kathman calculates.

Many analysts like what they see from General Mills and how its brand lineup will be strengthened from the Pillsbury acquisition. Twelve out of the 16 analysts who cover the company rate it a buy or strong buy, according to

Earnings.com

. Andrew Lazar, an analyst with

Lehman Brothers

(LEH)

, rates General Mills a strong buy and wrote in a recent report that "General Mills is still our highest rated large-cap packaged food stock and we do not foresee fundamentals eroding in any way at this point. GIS has done everything right to deliver consistent, top tier results."

General Mills is also a dominant brand that the experts only see getting stronger through the Pillsbury acquisition; among General Mills' current products are brands like Cheerios and Chex cereal, Yoplait yogurt and Pop Secret microwave popcorn. Combined, 85% of the hundreds of General Mills and Pillsbury brands will be either number one or number two in their category, Kathman says. Not only are these dominant brands, but they are primarily snack and prepared foods, convenience foods that time-starved Americans have been increasingly turning to.

Finally, the Pillsbury acquisition is also seen as a big cost-savings move for General Mills because of economies of scale. The company has said it expects to save $200 million through distribution, administrative, inventory and processing costs in fiscal 2002 and $400 million in fiscal 2003.

Kris Wenker, vice president of investor relations at General Mills, says that the company's initial earnings per share target of 10% to 13% through 2010 should improve by 2% a year because of "faster growing retail categories as well as increased scale in foodservice and the international markets."

General Mills also has adept management, and should be able to achieve the cost efficiencies with the Pillsbury acquisition that it has promised, analysts say. "General Mills' management is among the best of the public food companies," says Mark Turner, the consumer staples analyst on the

(TMGFX)

TheStreet Recommends

Turner Midcap Growth fund. This fund has 0.85% of its $850 million of assets under management in General Mills.

Janna Sampson, portfolio manager of the

(ASCEX)

AmSouth Select Equity fund, says that General Mills' management has been particularly good at keeping costs down and avoiding the kinds of manufacturing problems that have plagued other packaged-foods companies. Janna has 7.4% of her fund's $3 million in assets in General Mills.

Even though competitor Kellogg will derive similar strengths through a similar, pending acquisition of snack food maker

Keebler

(KBL)

Morningstar's Kathman says General Mills will still be a more diversified company once the two deals close because it will have more brands in the snack food, frozen, international and food service categories.

Strong competition from all corners is a concern, though. In a dash to combine brand-name and distribution strengths, a number of leading consumer foods groups are merging or forming joint ventures.

Kellogg

(K) - Get Kellogg Company (K) Report

, the pending

Pepsi

(PEP) - Get PepsiCo, Inc. Report

-

Quaker

(OAT)

combination and the joint venture between

Procter & Gamble

(PG) - Get Procter & Gamble Company Report

and

Coca-Cola

(KO) - Get Coca-Cola Company Report

are seen as direct threats to General Mills' premier status.

"At Kellogg's recent analyst meeting, Kellogg made it quite clear that it planned to spend significantly more marketing dollars behind its core U.S. cereal business. This could impact Big G

General Mills cereals volume," Lehman's Lazar.

Still, managers say that consumer staples are one of the few bright spots in this bear market. "Food stocks are considered safe havens," says Turner. That doesn't mean, though, that all food companies are good buys. "You are seeing negative announcements from

ConAgra

(CAG) - Get Conagra Brands, Inc. Report

,

Heinz

(HNZ)

and

Dean Foods

(DF) - Get Dean Foods Company Report

, but General Mills has delivered stable earnings," he says.