General Mills: Breakfast-at-Home Play
June 28th, 2011
The stock of food giant General Mills (GIS), first discussed here on April 8, 2009 split-adjust price of $25.40 ($50.80 per-split), has exhibited side-ways action during the past five months, but just look on that pause as a chance to scoop-up some shares of a premiere U.S. company.
Moreover, the reasons for the bullish view here are obvious enough. Demonstrated business model General Mills boasts solid brands (Cheerios, Wheaties, Lucky Charms, Total, and Chex), good cash flow, economies of scale, and room for international expansion. Add productivity gains, demonstrated marketing skill, and a solid, split-adjust $1.12 annual dividend and GIS is one play that’s hard to pass up.
Further, look for GIS’s 2011 revenue to increase 3-4%, followed by a 1-3% rise in 2012, bolstered by the U.S.’s ‘frugal consumer trend.’ In the states, with budgets pinched, eating out is ‘out,’ and eating in is ‘in,’ which is good news for General Mills.The Thomson Reuters First Call FY2011/FY2012 EPS estimates for GIS are $2.48 to $2.68.
Technically, General Mills’ stock has danced with the key, 50-day moving average over the past five months, but the calculation here argues GIS will trade over $45 by the end of next year, 2012.
2011 Outlook: I view General Mills as a long-term play, but if you’re looking to sell GIS within the year, it’s probably best to take your profits after it rises to $42-44, if it fails to rise above $45.
Stock Analysis: I consider General Mills to be a moderate-risk stock. If an investor has already purchased the company’s shares, I’d hold them. If not, I’d consider buying a 25% position in GIS now; then buy another 25% in one month, if U.S. and global economic conditions don’t worsen substantially. Under any circumstance, I wouldn’t buy more than 75% of my GIS position before June 2011 and I’d put a sell/stop loss at: $23.
Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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