Mondelez Proves It's Still A Worthy Investment

Following the release of third quarter results by Mondelez International Inc (NASDAQ: MDLZ), sell-side opined that the shares of the company are still a worthy investment.

UBS maintains its Buy rating on the shares of the company and its $49 price target for the shares. Meanwhile, BMO Capital Markets maintains its Overweight rating and its $48 price target.

At time of writing, shares of Mondelez were rallying 5.57 percent to $41.49.

Revenue Outperformance Makes Mondelez UBS's Top Large-Cap Pick

UBS analyst Steven Strycula estimates that the company's organic sales growth will accelerate to 1.5 percent in 2018 from 0.8 percent in 2017, supported by promising innovation agenda, the likelihood of it capturing share from Kellogg Company (NYSE: K) as its transitions its DSD business and acceleration in the roll out of large categories.

UBS said the improving fundamentals should help reverse the stock's valuation discount to its multi-national CPG peers. The firm expects the shares to rerate due to three improving dynamics, namely acceleration in organics sale, led by emerging markets, positive inflection in gross margins next year and ramp of free cash flow from $2 billion to 2.8 billion.

Reviewing the third-quarter results, UBS said it expects to the shares of Mondelez to rebound after a quality third quarter sales-led earnings per share beat. Higher U.S. trade spend and daily inflation led to a 60 basis-point contraction in gross margins, the firm added.

See also: Mondelez Has A Buying Opportunity Around $40, Recent Weakness An Overreaction

However, the firm noted that emerging market sales, accounting for 40 percent of the mix, accelerated 4.8 percent year-over-year and North American trends recovered to 1 percent growth. The firm said the company's guidance for 1 percent organic sales growth, implying acceleration in revenue growth to 2.2-3 percent in the fourth quarter, was better than Buy-side expectations.

Mondelez Is A Compelling Investment

BMO Capital Markets' Kenneth Zaslow said he continues to believe Mondelez shares are a compelling investment, as the company is poised to report better-than-expected results in 2018, aided by accelerated sales growth and ability to deliver 17-18 percent operating margin target.

The analyst said he is encouraged by the ongoing deployment of capital toward high-ROIC projects, the recent improvement in emerging market trends, a rebound in its North American outlook and the ongoing aggressive cost and efficiency programs, with relatively benign commodity price environment.

BMO Capital Markets views the third-quarter earnings beat as a function of strong sales, higher operating margins and lower interest expense, offsetting some lingering impact of malware-delayed shipments.

The firm noted that the company reiterated its "at least double-digit" constant-currency earnings per share growth guidance, assuming mid-16 percent operating margin, but it reduced its organic sales growth guidance from at least 1 percent to 1 percent, mainly due to malware.

"Third, MDLZ provided a favorable 2018 framework in which sales growth will benefit from a recovery in emerging markets, internal initiatives, and "pretty good" European sales, while reconfirming its 17-18% operating margin target," the firm added.

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