General Mills, Inc. (GIS) manufactures branded consumer foods and pet foods across four segments – U.S. Retail, International, Pet Operating and the Convenience States, and Food Service. The company’s organic and ready-to-eat food products were in high demand amid the pandemic, as outdoor dining took a sharp fall. This allowed GIS stock to gain 10.2% year-to-date.
However, as the global economy recovers from the pandemic with the deployment of coronavirus vaccines in the United States, GIS may witness a decline in demand for its products. In this regard, the company did not announce a complete outlook for fiscal 2021.
GIS is scheduled to release its fiscal second quarter (ended November 2020) results in tomorrow, before the market opens. Based on past performance and current macroeconomic conditions, analysts expect GIS’s revenue to increase slightly by 2.1% to $0.97 for the about-to-be-reported quarter. The consensus revenue estimate for the quarter ended in November 2020 indicates a 5.2% rise year-over-year.
GIS declined 3% over the past six months, as the tailwinds created by the pandemic started to diminish. This, combined with several other reasons, has led to a “Neutral” rating for the stock in our proprietary rating system.
Here’s how our proprietary POWR Ratings system evaluates GIS:
Trade Grade: C
GIS is currently trading below its 50-day and 200-day moving averages of $60.24 and $61.28, respectively, indicating a downtrend. Moreover, the stock declined by 3.2% over the past month, reflecting short-term bearishness.
GIS net sales rose 9% year-over-year to $4.40 billion in the fiscal first quarter ended August 2020. However, revenue from the Convenience Stores and Foodservices segment declined 12%. Operating profit rose 29% from the prior-year quarter to $854 million, while EPS increased 21% from the year-ago value to $1.03.
GIS teamed up with Sesame Street on December 1st to launch Sesame Street Cereal. The popularity of the show combined with GIS’s industry expertise should allow the brand to realize commercial success soon.
Earlier in November, GIS was included in the Dow Jones Sustainability World and North American indices, marking its third consecutive year of inclusion.
Buy & Hold Grade: B
In terms of proximity to a 52-week high, which is a key factor that our Buy & Hold Grade takes into account, GIS is well-positioned. The stock is currently trading 10.7% below its 52-week high of $66.14, which it hit on August 4th.
However, the stock improved slightly over the long term, as indicated by its 3.8% gains over the past three years. This can be attributed to its revenue and earnings growth over this time. GIS’s revenue and EPS increased at CAGRs of 5.1% and 10.3%, respectively, over the past three years, while its net income rose at a CAGR of 11.6% over this period.
GIS has expanded its product portfolio significantly over the past few years, introducing different kinds of organic and processed foods. This has helped the company increase its customer base significantly over this period, as the majority of these items have proven to be a commercial success, thereby driving its long-term performance.
Peer Grade: D
GIS is ranked #31 out of 58 stocks in the Food Makers industry. Other popular stocks in this group are SunOpta, Inc. (STKL), The Hain Celestial Group, Inc. (HAIN), and Darling Ingredients, Inc. (DAR).
STKL, HAIN, and DAR gained 291.4%, 51.5%, and 121%, respectively, over the past year. This compares to GIS’s 14.4% returns over this period.
Industry Rank: B
The Food Makers group is ranked #27 out of 123 industries listed in the StockNews.com universe. The industry has remained popular throughout this year, as people are becoming more health-conscious, particularly amid the pandemic. The demand for organic foods in particular has skyrocketed, as most people having desk jobs are highly susceptible to illnesses. With remote lifestyles exacerbating the situation, people are shifting to healthy edibles to increase their immunity and stamina. This trend is likely to continue for the long term, as awareness regarding health rises with a global aging population.
Overall POWR Rating: C (Neutral)
GIS is rated “Neutral” based on its long-term bullishness but short-term bearishness, stiff competition, and underlying industry performance, as determined by the four components of the overall POWR Rating.
The current macroeconomic factors are unfavorable for GIS, as the United States is headed toward recovery. Also, the company faces steep competition in the market. Thus, unless the company rolls out new strategies to boost its growth over the long term, it may not be a good idea to bet on the stock.
GIS has an average broker rating of 1.92, reflecting bearish analyst sentiment. Out of 20 Wall Street analysts that rated the stock, just one rated it “Strong Buy.” The consensus EPS estimate of $3.64 for the current year indicates a slight improvement year-over-year. However, analysts expect revenues to decline slightly this year.
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GIS shares were trading at $58.92 per share on Wednesday afternoon, down $0.11 (-0.19%). Year-to-date, GIS has gained 13.83%, versus a 16.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don’ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More…
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