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Deutsche Bank adjusted its outlook on General Mills (NYSE: NYSE:GIS), raising the price target to $70 from $66. The firm sustained its Hold rating on the stock.
The move reflects a tempered expectation for the company's first-quarter fiscal year 2025 results, with no significant surprises anticipated.
The analyst from Deutsche Bank noted that General Mills continues to face challenges, including subdued consumption trends, with tracked channel growth showing a 2.1% decline in the first quarter of fiscal year 2025 compared to a 2.8% drop in the fourth quarter of fiscal year 2024.
The trend is attributed to consumers seeking better value and cutting back on discretionary spending in the U.S.
General Mills is also experiencing deceleration in its Foodservice growth, particularly in the face of stiffening competition as industry peers increase their advertising and promotional expenditures.
Furthermore, the company's performance in emerging markets, such as Brazil and China, remains uneven, and concerns persist over potential aggressive mergers and acquisitions or capital allocation strategies.
However, the analyst pointed out that these challenges are now well recognized and have been factored into General Mills' outlook for fiscal year 2025, especially for the first half of the year.
This has led to a belief that the current stock valuation, approximately 16.5 times the next twelve months' price-to-earnings ratio compared to the sector's average of around 22.5 times, is reasonable.
In other recent news, General Mills confirmed financial targets for fiscal year 2025, with expectations of flat to 1 percent organic net sales growth and adjusted operating profit ranging from a 2 percent decline to flat in constant currency.
The company's plans to stimulate volume growth through significant investment were revealed, with cost savings expected to offset inflationary pressures. Asheesh Saksena was appointed as Chief Strategy & Growth Officer, bringing previous experience from Gap, Inc. (NYSE:GAP) and Best Buy (NYSE:BBY).
Analyst firms have provided varied feedback: Jefferies raised the price target for General Mills from $66.00 to $69.00, maintaining a Hold rating. Goldman Sachs initiated coverage of the company with a Buy rating, emphasizing the strength of the company's diverse product portfolio.
However, Argus downgraded General Mills' stock from Buy to Hold due to ongoing volume weaknesses and inflationary pressures.
General Mills is considering potential mergers and acquisitions in the $1 billion to $1.5 billion range as part of its capital allocation priorities.
InvestingPro Insights
General Mills' (NYSE:GIS) recent performance and strategic decisions provide a mixed picture for investors. According to InvestingPro data, General Mills has a market capitalization of $41.78 billion and trades at a P/E ratio of 17.37, with an adjusted P/E ratio for the last twelve months as of Q4 2024 at 15.44. This suggests a relatively stable valuation compared to Deutsche Bank's noted sector average P/E of around 22.5 times. The company's revenue growth has seen a slight downturn, with a -1.18% change over the last twelve months as of Q4 2024.
InvestingPro Tips highlight that General Mills has been proactively managing its share count, with management aggressively buying back shares. This could be a positive signal for investors looking for companies with shareholder-friendly practices. Additionally, the company has consistently raised its dividend for four consecutive years and has maintained dividend payments for an impressive 54 consecutive years, which could appeal to income-focused investors. The dividend yield as of the end of 2024 stands at 3.2%, with a dividend growth rate of 11.11% for the last twelve months as of Q4 2024.
For those interested in exploring more about General Mills' financial health and future prospects, there are additional InvestingPro Tips available, providing deeper insights into the company's strategic moves and market position.
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