Here’s an investment idea for bargain hunters everywhere. If General Mills (NYSE:GIS) stock drops below a certain price, I believe it will be an excellent consumer goods pick for 2024. The sentiment surrounding General Mills right now is definitely negative, so I am neutral on GIS stock at the moment but am watching and waiting for a good entry point.
General Mills is a well-known packaged foods provider for grocery stores in America. The company is famous for its cereal brands, which include Wheaties, Cheerios, and Lucky Charms.
Frustratingly high food-price inflation has compelled some consumers to opt for generic cereal brands instead of General Mills’ higher-priced offerings. Therefore, it really shouldn’t be too shocking that General Mills would publish lackluster recent financial results. Yet, after the market is finished beating up on GIS stock, there might be a tasty value-and-yield combo for defensive investors.
General Mills Gets Raked Over the Coals
While risk-on assets, and especially mega-cap technology stocks, continue to grind higher, General Mills stock has been a poor performer in 2024 so far. Making matters worse, General Mills got raked over the proverbial coals on Wednesday after the company released its results for the fourth quarter of Fiscal Year 2024 and outlook for Fiscal Year 2025.
It’s an odd situation, I feel, as investors should have already known that inflation would cause problems for General Mills. I wonder if stock traders are inappropriately placing the same growth expectations on General Mills that they’re placing on technology companies.
In other words, General Mills’ growth and recovery won’t happen quickly, but the market just isn’t patient anymore. General Mills stated that it “expects volume trends in its categories will gradually improve in fiscal 2025,” yet short-term traders don’t seem willing to wait that long.
That’s a shame, as many investors will miss out on what I believe will be a great opportunity. General Mills has a terrific track record of beating Wall Street’s quarterly EPS forecasts, and Q4 of FY2024 added another win for the company.
It wasn’t a huge win, I’ll admit. General Mills posted adjusted earnings of $1.01 per share, slightly outpacing the analysts’ consensus estimate of $0.99 per share. On the other hand, General Mills earned $1.12 per share in the year-earlier quarter.
Also, General Mills generated quarterly revenue of $4.71 billion, down 6% year-over-year and short of the consensus estimate of $4.85 billion. Again, though, I must emphasize that people should have seen this coming from a mile away.
For example, prior to General Mills’ earnings release, RBC Capital Markets analyst Nik Modi wrote, “We see a generally muted quarter for General Mills as management commentary and consumption data point to soft trends.” Thus, there weren’t any huge negative surprises in the results, and Wednesday’s sell-off in GIS stock may have been overdone.
Let the Sellers Do Their Selling
When stock traders are in a bad mood, it might be wise to just stay out of the way and let them continue selling for a while. A good example of this is the sell-off in General Mills stock, which may persist for at least a few more days.
Investors will probably focus on General Mills’ outlook for Fiscal Year 2025, which isn’t particularly optimistic. Specifically, the company expects adjusted earnings between 1% lower and 1% higher compared to the base of $4.52 per share earned in Fiscal Year 2024. Furthermore, General Mills’ FY2025 guidance calls for organic net sales growth of zero to 1% on a year-over-year basis.
That’s not massive growth, but patience could pay off for investors with a long-term perspective. For one thing, there’s already a pretty good value proposition here. Assuming a share price of $64 and EPS of $4.52 over the past four quarters, General Mills would have a trailing P/E ratio of 14.2x.
If the stock price falls to $60, let’s say, then General Mills would be even lower than that. For reference, the sector median P/E ratio is around 20x.
Additionally, the company just announced a quarterly dividend increase to $0.60 per share. If General Mills continues to pay out dividend distributions of $0.60 per quarter or $2.40 per year, then assuming a $64 share price, General Mills’ forward annual dividend yield would be 3.75%. That’s certainly higher than the consumer-defensive sector average dividend yield of 2.125% – and General Mills’ forward dividend yield would be 4% if the share price falls to $60.
Is General Mills Stock a Buy, According to Analysts?
On TipRanks, GIS comes in as a Hold based on two Buys and nine Hold ratings assigned by analysts in the past three months. The average General Mills stock price target is $72.67, implying 13.3% upside potential.
Conclusion: Should You Consider General Mills Stock?
The market is punishing General Mills and hasn’t shown much love to the company this year. On the other hand, value and income investors might get an excellent deal with General Mills stock pretty soon.
Besides, owing to the negative impact of inflation, the market should have already expected General Mills to release unspectacular results. Consequently, I’m waiting a little bit longer for the sell-off to run its course, and I will consider buying GIS stock if and when it reaches my $60 price target.
