Jun 21, 2022
[6 min Read]
Kellogg Company, together with its subsidiaries, manufactures and markets snacks and convenience foods. The company operates through four segments: North America, Europe, Latin America, and Asia Middle East Africa. Its principal products include crackers, crisps, savory snacks, toaster pastries, cereal bars, granola bars and bites, ready-to-eat cereals, frozen waffles, veggie foods, and noodles.
In order to undergo a comparable analysis (to determine K stocks value), we need to first outline who K's competitors are.
These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to K, and have a market cap similar to K (if possible).
By keeping this in mind, I found the following list of companies to be some of K stocks closest competitors:
CLX, MKC, CHD, CCEP, HRL, FMX, CAG, SJM, ACI
Kellogg Company (NYSE: K), a premier food producer, will split its business up into three separate companies, which will be something along the lines of: Global Snacking Company, North American Cereal Company, and Plant Company.
The Global Snacking Company will consist of international cereals, noodles, and frozen breakfasts, and is estimated to produce $11.4B in revenue.
The North American Cereal Company will consist of their cereal brands in the USA, Canada, and The Caribbean, and is estimated to generate $2.4B in sales.
The Plant Company will consist of strictly plant-based products/brands, and is estimated to generate $340M in annual sales.
This news has sent the stock soaring upwards of 5% in premarket trading, and is generally bullish as each of these companies can have their own management/team and focus on the division that they are specializing in (rather than having general knowledge of each 3 markets.
Overall, it seems as though Kellogg's had a great financial performance as many of their key metrics (EPS, EBITDA, and Net Income) grew despite Kellogg's experiencing a decrease in their gross profits. However, it has been a while since 2021, so let's take a look at Kellogg's more recent financial performance.
Overall, it seems as though K had a poor financial performance as many of their financial metrics shrunk, most notably their EPS (by $-0.03), as well as their net income (by $-11M), and other metrics (as you can tell from the above bullet points). This is quite the opposite of what happened in 2021 as their gross profit grew, but most of their more important metrics shrunk
However despite all of this negative, K stock beat their EPS estimate by $0.17 (or 18.28%), as they reported an EPS of $1.10 1or the quarter (compared to their estimated EPS of $0.93).
As part of their Q1 2022 earnings release, K stated that they currently have 341M Shares Outstanding (weighted average), which is up 0 shares (from 341M shares outstanding in Q4 2021)..Furthermore, K stock has up to 3M of shares that they can issue (thereby diluting K's stock). This maximum dilution for the period would only have a dilutionary effect on K of 0.88%. Overall, this is great to see as an investor as it implies that Kellogg's will have very safe/minimal dilution going forward. It will be interesting however to see what the levels of dilution from each of the 3 new companies once Kellogg's splits their business.
Here is the current spread of K stock ratings. In total there are 28 K stock ratings, which fall in the following categories.
Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if K stock is a buy or sell. Overall, the analysts seem pretty neutral on Kellogg's, which is understandable given that their business is rather mundane and their growth is starting to stall out.
Overall, K stock is undervalued and needs to experience a change in stock price of (an average of) 12.11% to be considered “at fair value”. We have already seen a sizable jump in the K stock, so I think it would be more reasonable to say that their is a 5-10% upside to this play.
Overall, when taking a general overview of my K stock forecast implying that K is undervalued, K stock having minimal dilution, recent company split news, decent financials, and neutral analyst stock ratings; I have concluded the following.
It seems as though K stock is undervalued and can experience a 5%+ increase in stock price. I believe that this will happen in the short term as there are a lot of eyes on their stock after their split news.