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On Thursday, TD Cowen maintained a Hold rating on General Mills (NYSE:GIS) but reduced the stock's price target to $64 from the previous $75. The adjustment reflects concerns about the company's revised negative forecast and the broader challenges faced by large food companies. According to InvestingPro data, these challenges are impacting the entire sector, with multiple companies showing signs of valuation pressure.
According to the industry analyst, General Mills' decision to revise its forecast downward to accommodate additional investment in promotions is indicative of the broader issue of inflated pricing during the pandemic by major food corporations. The analyst pointed out that there is a noticeable shift in consumer behavior, with a preference for fresh foods over packaged goods typically found in the center aisles of grocery stores.
The report also highlighted potential downside risks to earnings estimates for other players in the sector, including Kellogg Company (NYSE:K) (KLG), Kraft Heinz Company (NASDAQ:KHC), Campbell Soup Company (NYSE:CPB), J.M. Smucker Company (SJM), and Conagra Brands (NYSE:CAG). These risks stem from similar market dynamics affecting General Mills.
InvestingPro analysis shows KLG has experienced a significant 12.3% decline in the past week, though maintaining a GREAT financial health score. Five analysts have recently revised their earnings expectations downward for the upcoming period.
Despite the reductions in their forecasts, these big food companies continue to emphasize the importance of maintaining profit margins. They claim to have achieved significant productivity savings that they believe will support their financial goals. However, the coming year is expected to be a critical period for testing the viability of these strategies amidst the evolving market pressures.
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