On Friday, Mizuho has revised its outlook on General Mills (NYSE:GIS) shares, reducing the price target to $62 from the previous $70 while maintaining a Neutral rating on the stock.
The firm attributes this adjustment to ongoing consumer pressures which are anticipated to hinder the company's growth acceleration until early to mid-2025. The decision follows General Mills' fourth fiscal quarter report, which revealed a significant revenue shortfall of 330 basis points compared to Street expectations.
This was further impacted by the company's weaker-than-anticipated guidance for fiscal year 2025, with expectations for foreign exchange-neutral earnings before interest and taxes (EBIT) ranging from a 2% decrease to flat, in contrast to the Street's forecast of a 1% increase. Moreover, the sales growth projection stands at 0-1%, falling short of the anticipated low single-digit percentage.
Notably, the firm pointed out that issues such as private label trade down and retailer dynamics, while present, are not considered major obstacles at this time. Instead, persistent consumer pressure and macroeconomic uncertainty are the primary constraints on General Mills' performance.
In response to these factors, Mizuho has lowered its earnings per share (EPS) estimate for General Mills for fiscal year 2025 to $4.51 from the previous estimate of $4.75.
However, the firm anticipates a return to the company's long-term growth algorithm in fiscal year 2026, with an estimated EPS of $4.83, reflecting a 7% increase. The revised price target of $62 is set at 11 times the firm's estimated EBITDA for calendar year 2025, aligning with the median of General Mills' food industry peers.
"In other recent news, General Mills announced a mixed bag of results in its Q4 earnings report. Despite surpassing earnings per share (EPS) estimates with a reported $1.01 against a forecasted $0.97, the company saw a 6% decline in organic sales.
In response, General Mills has outlined plans for fiscal year 2025, aiming to stimulate volume growth through significant investment, with cost savings expected to offset inflationary pressures.
TD Cowen, in light of these developments, adjusted its outlook on General Mills, reducing the share price target from $70 to $65 while maintaining a Hold rating. The company also faced challenges in Brazil and China, with a 10% drop in organic sales.
However, General Mills remains optimistic about fiscal 2025, planning to increase brand communication, innovation spending, and a 20% rise in coupon spending to improve volume.
CEO Jeffrey Harmening expressed confidence in the company's market strategies, expecting equal contributions from price and volume to growth in 2025. The company also anticipates a modest expansion in gross margins, despite increased investment.
Furthermore, General Mills has outlined capital allocation priorities that include internal investment for growth, dividend increases, and potential mergers and acquisitions in the $1 billion to $1.5 billion range."
InvestingPro Insights
General Mills (NYSE:GIS) has been navigating a challenging economic landscape, as reflected in Mizuho's revised outlook. Understanding the company's financial health and market position can provide a clearer picture for investors. InvestingPro data shows a market capitalization of $35.21 billion and a price-to-earnings (P/E) ratio of 14.64, which adjusts to 13.01 when considering the last twelve months as of Q4 2024. This suggests that the company is trading at a lower earnings multiple relative to its historical performance. Additionally, the company has a dividend yield of 3.8%, which is particularly notable given that General Mills has raised its dividend for 4 consecutive years and maintained dividend payments for 54 consecutive years, as highlighted by InvestingPro Tips.
Another point of interest is the company's stock price, currently near its 52-week low, which may indicate a potential entry point for value investors. Moreover, analysts predict General Mills will be profitable this year, with a solid track record of profitability over the last twelve months. For those considering a deeper investment analysis, InvestingPro offers additional tips on General Mills. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and discover more insights that could guide your investment decisions.
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