Is General Mills Inc. (GIS) Fairly Valued? An In-depth Valuation Analysis

Unveiling the intrinsic value of General Mills (GIS) through a meticulous valuation analysis

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On August 21, 2023, General Mills Inc (GIS, Financial) experienced a day's change of -1.75%, marking a 3-month loss of -20.65%. With an Earnings Per Share (EPS) (EPS) of 4.31, the question arises: is General Mills fairly valued? This article presents a comprehensive valuation analysis of General Mills, aiming to provide valuable insights for potential investors. Let's delve into the details.

Company Introduction

General Mills is a leading global packaged food company, producing snacks, cereal, convenient meals, yogurt, dough, baking mixes and ingredients, pet food, and superpremium ice cream. Its most notable brands include Nature Valley, Cheerios, Old El Paso, Yoplait, Pillsbury, Betty Crocker, BLUE, and Haagen-Dazs. In fiscal 2022, 77% of its revenue was derived from the United States, but the company also operates in Canada, Europe, Australia, Asia, and Latin America. While most of General Mills' products are sold through retail stores to consumers, the company also sells products into the food-service channel and the commercial baking industry.

As of the latest data, General Mills (GIS, Financial) has a market cap of $40.10 billion, sales of $20.10 billion, and a stock price of $68.98. The fair value (GF Value) of the company is estimated at $75.45, indicating that the stock is fairly valued.

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Understanding the GF Value

The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.

According to the GF Value, General Mills (GIS, Financial) appears to be fairly valued. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $68.98 per share, General Mills stock appears to be fairly valued.

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Evaluating Financial Strength

Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, it's crucial for investors to research and review a company's financial strength before purchasing shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. General Mills has a cash-to-debt ratio of 0.06, ranking worse than 84.95% of 1787 companies in the Consumer Packaged Goods industry. The overall financial strength of General Mills is 5 out of 10, indicating that the financial strength of General Mills is fair.

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Profitability and Growth

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. General Mills has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $20.10 billion and Earnings Per Share (EPS) of $4.31. Its operating margin of 15.16% is better than 84.43% of 1818 companies in the Consumer Packaged Goods industry. Overall, GuruFocus ranks General Mills's profitability as strong.

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of General Mills is 5.2%, which ranks worse than 54.12% of 1713 companies in the Consumer Packaged Goods industry. The 3-year average EBITDA growth is 4.3%, which ranks worse than 53.61% of 1522 companies in the Consumer Packaged Goods industry.

ROIC vs WACC

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, General Mills's ROIC is 8.11 while its WACC came in at 3.8.

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Conclusion

In summary, the stock of General Mills (GIS, Financial) appears to be fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 53.61% of 1522 companies in the Consumer Packaged Goods industry. To learn more about General Mills stock, you can check out its 30-Year Financials here.

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure