UBS On General Mills' Analyst Day: 'More Questions Than Answers'

General Mills, Inc. (NYSE: GIS) hosted its Analyst Day on July 13, and focused on portfolio segmentation and margin targets, UBS’s Steven Strycula said in a report. He maintained a Neutral rating on the company, with a price target of $71.

General Mills had raised its op margin target to 20 percent by FY18. The company indicated that it would focus on segmenting its portfolio into growth brands and foundational brands.

Take On Margin Target

Kraft Heinz Co (NASDAQ: KHC) had demonstrated that with the right cost discipline, US Food companies could operate at a much higher margin level.

Analyst Steven Strycula commented, however, that General Mills did not seem ready to “fully deliver or attempt KHC’s margin focus.” He expects the company to be able to achieve op margin of about 19.5 percent by FY18 to reflect “larger than anticipated reinvestment risks in categories where branded competition is stiff (yogurt, cereal, snacks, soup).”

Related Link: Morgan Stanley Raises General Mills' Price Target On Margin Improvements

Take On Valuation

Although General Mills “deserves credit” for increasing the pace of change, with shares are trading at decade-high multiples, the stock already seems to have “priced for accelerated margin savings,” leaving little upside, unless the company is able to deliver revenue growth ahead of consensus expectations, Strycula mentioned.

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