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On Thursday, General Mills (NYSE:GIS) shares faced a downward revision in their price target from TD Cowen, dropping to $57 from the previous $60, while the firm retained a Hold rating on the stock. The adjustment by TD Cowen comes as General Mills reported a miss in their third-quarter sales and issued a lower earnings per share (EPS) guidance for fiscal year 2025. Additionally, the company indicated potential further EPS declines in fiscal year 2026. According to InvestingPro data, 12 analysts have recently revised their earnings estimates downward, with analyst targets ranging from $54 to $73.39.
According to TD Cowen, General Mills is anticipated to experience a 9-10% reduction in core operating profit and approximately a 200 basis point contraction in margins over a two-year period. This contraction is expected as the company increases investments in pricing and marketing to enhance their value proposition to consumers. The firm’s analysis suggests that General Mills, often considered a leading indicator in the food sector, could prompt similar actions from other food companies. Despite these challenges, InvestingPro data shows the company maintains strong profitability with a 35.4% gross margin and has consistently paid dividends for 55 consecutive years, currently offering a 4.05% yield.
TD Cowen’s analysis also suggests that General Mills and other major food companies may have increased prices excessively during the pandemic and now need to recalibrate their pricing strategies in response to shifting consumer dynamics. The report points out that relying on consumers to adjust to cumulative inflation might prove challenging, especially in the context of declining consumer confidence, growing private label product (GLP) usage, and potential further reductions in Supplemental Nutrition Assistance Program (SNAP) benefits.
The revised price target of $57 reflects a 14.5 times price-to-earnings (P/E) ratio against TD Cowen’s forward 12-month EPS estimate. The report incorporates an expected 17 cents of EPS dilution to fiscal year 2026 due to the impending Yoplait divestiture. The valuation also includes a discount to the stock’s five-year average P/E of 16.6 times, accounting for weaker anticipated top-line growth. InvestingPro’s comprehensive analysis indicates the stock is currently trading near its Fair Value, with a P/E ratio of 12.74 and revenue declining by 2.62% over the last twelve months. For deeper insights into General Mills’ valuation and future prospects, access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.
In other recent news, General Mills has faced several adjustments in its financial outlook from analysts following its latest earnings report. The company’s quarterly results highlighted challenges in the packaged food sector, leading RBC Capital Markets to reduce its price target from $70 to $67 while maintaining a Sector Perform rating. Bernstein SocGen Group also lowered its price target for General Mills from $68 to $62, citing a shift in consumer behavior towards more cost-effective options and health-focused eating habits. Mizuho (NYSE:MFG) Securities followed suit, cutting the price target to $60 from $62, pointing out weaker sales in the snacks category and inventory reductions impacting earnings. Barclays (LON:BARC) adjusted its target from $65 to $60, noting General Mills’ plan to increase trade and media spending to enhance consumer value. Despite these challenges, Stifel maintained a Buy rating with a steady price target of $65, acknowledging the company’s market share gains in areas where investments have been effective. General Mills’ revised financial guidance reflects these strategic investments and the broader economic pressures affecting consumer habits. Analysts are closely watching the company’s efforts to improve its market position through increased promotional activities and innovation.
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