Jefferies analysts initiated shares of WK Kellogg (NYSE:KLG) with a Hold rating and $15 per share price target in a note to clients on Monday.
They explained that the North American cereal business of legacy Kellogg will trade independently tomorrow under the ticker "KLG."
"With a flat sales outlook in a declining RTE cereal category, elevated upfront capex needs, and a disadvantaged margin profile, we anticipate a discounted multiple relative to peers and initiate with a HOLD rating," the analysts wrote.
"KLG share gains hinge on winning back shelf and improving velocities," they added. "While KLG regained some market share lost during the time of its plant fire/employee strike, it has since flat-lined ~250 bps below pre-pandemic levels and has lost share on a y/y basis in each of the L6M."
"KLG's distribution remains below pre-fire/strike levels and is still a core driver to go-forward market share gains. What it will take to win shelf back is the main question given volume performance below that of key competitors."
The analysts also noted that margin upside will leave KLG short of peers, while the current valuation discount compared to peers is "warranted."