On Friday, Mizuho reaffirmed its Neutral stance on shares of General Mills (NYSE:GIS) with a consistent price target of $62.00. The decision comes in light of General Mills' recent move to divest its North American yogurt operations for a sum of $2.1 billion, a transaction that is anticipated to be mildly dilutive to earnings per share (EPS) in the first year following the sale, with an estimated reduction of about 3% excluding one-time items.
The sale, which is valued at approximately 1.4 times the fiscal year 2024 revenue and an estimated 9 times EBITDA, aligns with Mizuho's initial analysis that General Mills' market share in yogurt has faced challenges for over a decade and a half. The firm suggests that General Mills' focus and resources would be more effectively allocated to other areas of its portfolio.
Despite the expected initial EPS dilution, Mizuho predicts that the divestiture could ultimately benefit General Mills by potentially enhancing the organic sales growth of the North America Retail segment by around 0.30 percentage points and similarly improving margins. The impact on the company's Foodservice operations is expected to be negligible.
The broader market context, including macroeconomic volatility and a trend of investors gravitating towards staple stocks, is likely to mitigate the impact of the yogurt business sale on General Mills' share performance. Moreover, the use of the sale proceeds for share repurchases is factored into the financial outlook.
General Mills is scheduled to release its fiscal quarter one earnings report on September 18, which will provide further insights into the company's financial health and the immediate effects of the yogurt business divestiture.
InvestingPro Insights
The strategic maneuvers by General Mills (NYSE:GIS) to divest its yogurt operations and focus on core growth areas have been met with a steady outlook from Mizuho. To complement this analysis, InvestingPro data provides a broader financial perspective.
With a market capitalization of $40.64 billion and a P/E ratio that has been adjusted to 15.02 for the last twelve months as of Q4 2024, General Mills presents a mixed financial picture. The company's revenue has seen a slight contraction of 1.18% during the same period, indicating challenges in top-line growth.
However, two InvestingPro Tips highlight General Mills' commitment to shareholder returns: management's aggressive share buyback strategy and a history of raising its dividend for four consecutive years, with the company maintaining dividend payments for an impressive 54 years.
These actions suggest a focus on long-term shareholder value. The company's dividend yield stands at 3.29% as of the latest data, with a notable dividend growth of 11.11% over the last year, reinforcing its appeal to income-focused investors.
As investors anticipate General Mills' upcoming earnings report on September 18, these financial metrics and strategic decisions will be crucial in assessing the company's trajectory post-divestiture. For those interested in a deeper dive, InvestingPro offers several additional tips on General Mills, available at: https://www.investing.com/pro/GIS.
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