General Mills Inc (GIS, Financial) faced a 0.98% loss on September 27, 2023, contributing to a 3-month decline of 19.71%. Despite this, the company boasts an Earnings Per Share (EPS) of 4.1. This raises a crucial question: Is General Mills modestly undervalued? The following analysis aims to answer this question by examining the company's valuation, financial strength, profitability, and growth.
A Snapshot of General Mills Inc
General Mills is a leading global packaged food company that produces snacks, cereal, convenient meals, yogurt, dough, baking mixes and ingredients, pet food, and superpremium ice cream. Its most prominent 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, although the company also operates in Canada, Europe, Australia, Asia, and Latin America. The majority of General Mills' products are sold through retail stores to consumers, but the company also sells products into the food-service channel and the commercial baking industry.
As of September 27, 2023, the stock price of General Mills (GIS, Financial) stands at $64.58, with a market cap of $37.50 billion. However, the fair value (GF Value) is estimated at $76.54. This discrepancy suggests that the company might be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. This value is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to GuruFocus Value calculation, General Mills (GIS, Financial) is estimated to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of General Mills
Investing in companies with poor financial strength can lead to a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. General Mills has a cash-to-debt ratio of 0.04, which ranks worse than 88.81% of 1796 companies in the Consumer Packaged Goods industry. The overall financial strength of General Mills is 5 out of 10, which indicates that the financial strength of General Mills is fair.
Profitability and Growth of General Mills
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. General Mills has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $20.30 billion and Earnings Per Share (EPS) of $4.1. Its operating margin of 16.37% is better than 87.78% of 1841 companies in the Consumer Packaged Goods industry. Overall, GuruFocus ranks General Mills's profitability as strong.
Growth is probably one of the most important factors in the valuation of a company. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. General Mills's 3-year average revenue growth rate is worse than 54.43% of 1716 companies in the Consumer Packaged Goods industry. General Mills's 3-year average EBITDA growth rate is 4.3%, which ranks worse than 53.74% of 1524 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 8.83 while its WACC came in at 8.62.
Conclusion
In summary, the stock of General Mills (GIS, Financial) is estimated to be modestly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 53.74% of 1524 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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