|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Maybe It's Time to Think About This Multibillion-Dollar Food Company
Posted by: Victor Selva (IP Logged)
Date: April 21, 2014 04:44PM
General Mills Inc. (GIS) has a distinguished portfolio of leading brands. The company manufactures its products in 16 countries and sells them in more than 100 countries. In this article, let's take a look at this cereal maker and try to explain to investors the reasons this is an apparently appealing investment.
In August 2012, the company acquired Yoki Alimentos S.A., a privately held food company headquartered in Brazil. Yoki operates in several food categories, including snacks, convenient meals, basic foods and seasonings. It is expected that the acquisition of Yoki would more than double annual sales in Latin America, to nearly $1 billion. In July 2011, it acquired a 51% controlling interest in Yoplait S.A.S., and a 50% interest in a related entity that holds the worldwide Yoplait brands, from PAI Partners and Sodiaal. All these acquisitions strengthened the firm´s presence in fast-growing food categories and increased sales and profits in fiscal 2013.
Focusing on Expansion in the Emerging Markets
The company plans to enlarge its operations in China, Brazil, India and Russia, countries where the consumption spending growth would be positive. The special focus is on China, where strategies are designed to generate balanced growth through its excellent portfolio with Haagen Dazs ice creams and Wanchai Ferry frozen foods which account for the majority of sales. By 2020 China will have around 200 million middle class residents and the company plans to achieve $900 million in sales by 2015.
Dividend & Share Repurchases
Looking at the financials, the company has a strong balance sheet: good cash that allowed the company to pay dividends uninterrupted and without reduction, for more than 100 years. The company increased its annual dividend payments for fiscal 2011 by 17%, for fiscal 2012 by 8% and for fiscal 2013 by 15%. Moreover, the board of directors declared a quarterly dividend of 41 cents per share, payable May 1, 2014, to shareholders of record April 10, 2014. This represents an 8% increase from the previous quarterly rate of 38 cents per share. Including this, the firm's dividends per share in fiscal 2014 will total $1.55, up 17% from the annual dividend of $1.32 paid the previous fiscal year. At recent stock prices the yield is almost 3%, higher than the industry mean of 2%. Finally, the company has repurchased shares by $1 billion in fiscal 2013. We expect to generate strong cash flows from operations again this year, and much of that cash will possibly return to shareholders through dividends and share repurchase.
The firm is currently Zacks Rank # 3–Hold, and it also has a longer-term recommendation of “Neutral”. A Hold rating indicates that the stock, over the next one to three months, will perform at an annualized rate of 10.56%, very similar to the S&P 500. There are no comps with a Zacks Rank # 1–Strong Buy.
Relative Valuation, Earnings and ROE
In terms of valuation, the stock sells at a trailing P/E of 19x, a discount to the industry mean. Earnings per share (EPS) have increased by 6.7% in the most recent quarter compared to the same quarter a year ago, $0.64 per share for the third quarter. In the next graph we include the stock price because EPS often lead the stock price movement. As we can appreciate in the chart, the price performance as well as EPS had an upward trend over the last 10 years.
Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has increased from the same quarter one year prior. This is a clear sign of strength within the company.
Let´s compare the current ratio with the peer group in the next table:
General Mills has a current ratio of 27.08% which is very good and higher than the ones registered by Diamond Foods Inc. (DMND), Inventure Foods Inc. (SNAK), J&J Snack Foods Corp. (JJSF), Kerry Group Plc (KRYAY), McCormick & Company Inc. (MKC) and Mondelez International Inc. (MDLZ). For investors looking for a higher ROE, Campbell Soup Company (CPB) is a good option.
As outlined in this article, we see longer-term growth opportunities, including new products and international expansion, seeking for profit improvement in emerging markets. Moreover, the dividend growth is a key component. Finally, the firm´s EPS as well as ROE growth are demonstrating the improvement of the company´s strength. Therefore, I feel bullish about this company’s future profitability.
I would recommend investors consider adding the stock for their long-term portfolios. Hedge fund gurus have also been active in the company in the fourth quarter of 2013. Gurus like Joel Greenblatt (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Bill Frels (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio) and Diamond Hill Capital (Trades, Portfolio) have also invested in it.
Disclosure: Victor Selva holds no position in any stocks mentioned.
Guru Discussed: Bill Frels: Current Portfolio, Stock Picks
Diamond Hill Capital: Current Portfolio, Stock Picks
Stocks Discussed: GIS, CPB, DMND, SNAK, JJSF, KRYAY, MKC, MDLZ,