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On Tuesday, General Mills shares (NYSE:GIS) were downgraded by Argus from Buy to Hold. The firm's decision comes after observing that General Mills' shares have not performed as well as the broader market over the past quarter, with a 5% decline compared to a 9% increase for the S&P 500 and a 3% rise for the industry, as tracked by the ETF IYK.
The downgrade follows General Mills' recent announcement of their fiscal fourth-quarter 2024 results, which exceeded consensus expectations. Despite this, the company is facing ongoing volume weaknesses and inflationary pressures. Argus cited these challenges, along with a slow-growth forecast, as reasons for the revised rating.
The firm indicated that they might consider reinstating a more favorable rating if General Mills demonstrates sustained growth in volume and margins. For the time being, however, they believe that a Hold rating is warranted for the stock.
General Mills is a major player in the food industry, and its performance is closely watched by investors for signs of the company's health and the sector's overall stability. The recent downgrade by Argus reflects caution amidst a challenging economic environment for the company.
In other recent news, General Mills faced a series of financial adjustments following its Q4 report.
Mizuho and TD Cowen both revised their price targets for the company, with Mizuho lowering it to $62 and TD Cowen to $65, while maintaining Neutral and Hold ratings respectively. The revisions were primarily due to concerns about growth delay and the company's decision to increase investments for volume growth.
The Q4 report revealed a significant revenue shortfall and weaker-than-anticipated guidance for fiscal year 2025, with the company's sales growth projection standing at 0-1%. The company's EPS for fiscal year 2025 was also lowered to $4.51 from $4.75 by Mizuho.
Despite these challenges, General Mills announced plans to stimulate volume growth through significant investment, with cost savings expected to offset inflationary pressures. The company's CEO, Jeffrey Harmening, expressed confidence in the company's market strategies, expecting equal contributions from price and volume to growth in 2025.
General Mills also outlined capital allocation priorities that include internal investment for growth, dividend increases, and potential mergers and acquisitions in the $1 billion to $1.5 billion range. These are the latest developments in the company's ongoing efforts to navigate market volatility.
InvestingPro Insights
Following the downgrade by Argus, a deeper dive into General Mills' financial health using InvestingPro data reveals a mixed picture. With a market capitalization of $35.09 billion and a P/E ratio of 14.52, General Mills is seen trading at a low earnings multiple, which could indicate that the stock is potentially undervalued relative to its earnings. Additionally, the company has a strong track record of dividend reliability, having maintained dividend payments for 54 consecutive years and raised its dividend for the last four consecutive years.
InvestingPro Tips suggest that management's aggressive share buybacks and the analysts' expectation that the company will remain profitable this year could be signs of underlying strength. On the flip side, short-term obligations exceeding liquid assets and 10 analysts revising earnings downwards for the upcoming period may raise concerns for some investors. For those interested in a comprehensive analysis, InvestingPro offers additional tips on General Mills, which can be accessed through their platform.
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