Frosted Flakes, Oreos find a new market shelf life, analysts say
Credit Suisse analysts think the Kellogg’s Company, the maker of popular cereal Frosted Flakes, and Mondelez International, which is the parent company of Oreo-cookie-maker Nabisco, have a shelf-life.
The brokerage firm upgraded its rating on the two packaged-foods brands, in a new report. Kellogg's showed some snap, crackle and pop in its stock today as a result with the cereal maker rising nearly 1.5 percent and is up more than 11 percent for the last three months.
Kellogg’s, which brought in $13 billion in revenue in 2018, was raised to “outperform” from “neutral” and its target price ticked up from $60 per share to $78 per share. Analysts in the report said Kellogg’s could see a positive inflection in 2020 despite lingering sales woes.
The brand’s portfolio “changes and reinvestment spending over the past two years have set the stage for sustainable revenue growth, margin expansion and high-single-digit EPS growth,” the report read.
“North American cereal category is now showing signs of stabilization even without Kellogg’s contribution", according to the report. "This reinforces our view that the majority of Kellogg’s problems in this business (19% of sales) are self-inflicted and can be addressed effectively once management makes a bigger commitment to the category.”
Mondelez, which acquired refrigerated-nutrition bar maker Perfect Snacks in July, also got high praise from Credit Suisse. The firm raised its rating to “outperform” from “neutral” on the snack maker, which brought in $26 billion in revenue last year. Its upsides include a “local first” strategy and “an improved margin structure to be sustainable close to 17 percent and financial flexibility coming from joint ventures.”
The market was not as impressed as with the snack king as it was with breakfast baron. Mondoelez closed marginally down and the stock is down a little more than 1 percent for the past three months.
Both companies are set to report earnings soon: Kellogg's on Feb. 6 and Mondelez on Jan. 29.
“Food companies have reacted to the dynamic operating environment by investing in e-commerce and digital marketing, reshaping their portfolios and adjusting their supply chain footprints,” the report said. “Kellogg and Mondelez have invested sufficiently and are growing at a strong enough pace to generate operating leverage in the year ahead.”
About 96 percent of U.S. consumers will typically purchase cereal during their grocery shopping trips, according to a recent Shopkick survey of more than 43,000 shoppers. And half base their purchase decision based on flavor, which is good news for Kellogg and Mondelez, both of which introduced new products with flavors to lure in more customers.
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Credit Suisse also gave positive reviews to Nomad Foods and Tyson Foods, but cautioned investors on brands including B&G Foods, Heinz, Kraft and Smucker, as they may “still need another year of investment to return to a path of sustainable organic growth.”
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Kellogg’s stock rose 11 percent in the last three months and is up 19 percent on the year. Mondelez’s stock dropped 1 percent in the same time but is up 28 percent on the year.
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