What Kellogg's Shocking Split News Means for the K Stock

Today we are looking at Kellogg Company (NYSE: K), to determine if the K stock is a good buy. We will look at K financial ratios, analyst ratings, and valuation to determine a K stock forecast and price. What does K Do? 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. Laying out Information for a K Stock Forecast Who are Kellogg Company's Competitors? 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 K Stock News and Information K Stock in Recent News 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. Opposite Kellogg Company Quarterly and Yearly Earnings?  K Earnings (Yearly): K Revenues: In FY 2021, K experienced a yearly increase in revenues of $411M (or 2.98%) resulting in a total revenue figure of $14.18B. K Cost of Revenues: In FY 2021, K experienced a yearly increase in their cost of revenues of $578M (6.39%), resulting in a total revenue figure of $9.62B. Since the increase (of 6.39%), in K's cost of revenue was greater (by 3.41%) than the increase (of 2.98%) in K's revenues, we should expect that K experienced a decrease (roughly -3.41%) in their FY gross profits. K Gross Profit: In FY 2021, K experienced a yearly decrease in their gross profit of $-167M (or -3.53%) resulting in a total gross profit of $4.56B. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between FY and FY. K EBITDA: In FY 2021, K experienced a yearly increase in their EBITDA of $318M (or 13.62%) resulting in a total EBITDA of $2.65B. This increase (of 13.62%) is quite surprising as Kellogg’s experienced a decrease in their gross profits of -3.53% (as we saw in the previous bullet point). K Net Income: In FY 2021, K experienced a yearly increase in their net income of $237M (or 18.94%) resulting in a total net income of $1.49B. K EPS: As a result of K's increase in net income of $237M, K's EPS also increased (by $0.71) from $3.65 in FY 2020 to $4.36 in FY 2021 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. K Earnings (Quarterly): K Revenues: In Q1 2022, K experienced a quarterly increase in revenues of $252M (or 7.37%) resulting in a total revenue figure of $3.67B. K Cost of Revenues: In Q1 2022, K experienced a quarterly increase in their cost of revenues of $98M (4.06%), resulting in a total revenue figure of $2.51B. Since the increase (of 4.06%), in K's cost of revenue was lesser (by -3.31%) than the increase (of 7.37%) in K's revenues, we should expect that K experienced an increase (roughly 3.31%) in their Q1 gross profits. K Gross Profit: In Q1 2022, K experienced a quarterly increase in their gross profit of $154M (or 15.32%) resulting in a total gross profit of $1.16B. This increase is somewhat consistent with our conclusion from the comparison of revenues and cost of revenues between Q1 2022 and Q4 2021. K EBITDA: In Q1 2022, K experienced a quarterly decrease in their EBITDA of $-144M (or -19.62%) resulting in a total EBITDA of $590M. This decrease (of -19.62%) is very surprising given the fact that K experienced a increase in their gross profits of 15.32% (as we saw in the previous bullet point). K Net Income: In Q1 2022, K experienced a quarterly decrease in their net income of $-11M (or -2.54%) resulting in a total net income of $422M. This decrease is far less than that of their EBITDA, however, it is still not a great sign for Kelloggs. K EPS: Despite K's decrease in net income of $-11M, Kellogg's was able to experience an EPS increase (of $0.27) from $1.10 in Q4 2021 to $0.83 in Q1 2022 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). Minimal K Share Dilution is Great for Investors 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. Analysts Opinions on the K Stock Here is the current spread of K stock ratings. In total there are 28 K stock ratings, which fall in the following categories. 7 Buys 18 Holds 3 Sells 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. Achieving a K Stock Prediction Using a Comparable Analysis to Determine a K Price Forecast Price to Book (P/B): K's current P/B ratio is 6.07, compared to the average P/B ratio of K's peers being 4.34. This implies that K is overvalued and their share price should change by a factor of -28.46% to be at fair value (based on K's P/B compared to the P/B of their peers). Price to Equity (P/E): K stock P/E ratio is currently 15.04, compared to the average P/E ratio of K's peers being 22.97. This implies that K is undervalued and their share price should change by a factor of 52.67% to be at fair value (based on K's P/E compared to the P/E of their peers). 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. Is K a good stock to buy right now? 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.