TD Cowen starts WK Kellogg with a Market Perform on category decline risks

TD Cowen initiated coverage of WK Kellogg (KLG) with a Market Perform rating and $11 price target. The spin from Kellanova (K) gives WK Kellogg the opportunity to regain market share in breakfast cereal and rebuild profits, but the firm is concerned that years of underinvestment may have impaired the company’s brands and hampered its ability to engineer a turnaround in a U.S. cereal category that is in structural decline. The company’s mid-teens EBITDA margin goal “sounds reasonable” relative to other food peers, but also “sounds hard to do in a category where volume is sharply declining and competitors probably need to discount their prices more aggressively,” the analyst tells investors.