Kellogg Company price analysis: is now a good time to buy this stock?

By: Stanko Iliev
Stanko Iliev
Stanko dedicates himself to providing investors with relevant information they can use to make investment decisions. He loves the… read more.
on Sep 19, 2021
  • Kellogg Company shares have weakened from their recent highs above $67
  • The company's management sees potential risks for the upcoming quarters
  • Kellogg will spend $45 million to optimize its supply chain

Kellogg Company (NYSE: K) shares continue to trade above strong support that stands at $60 while the company’s management sees potential risks for the upcoming quarters mainly due to inflation together with covid concerns.

Fundamental analysis: Kellogg Company announced a plan to reorganize its supply chain network

Kellogg Company is an American multinational food manufacturing company that produces cereal and convenience foods. The breakfast-cereal-consuming population in the US is expected to grow from 283 million to 290 million by 2024, and if you are looking for a solid return potential, shares of this company can be a good choice.

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Kellogg continues to benefit from positive consumer preferences that have evolved to lean towards healthy foods, and the company reported better than expected second-quarter results last month. Total revenue has increased by 2.3% Y/Y to $3.55 billion, which was above expectations, while the GAAP EPS was $1.11 for the second fiscal quarter (beats by $0.09).

The organic sale grew 1.9% in the second quarter, and the company’s sales through retail channels remained strong. The retail market continues to improve based on positive consumer behavior trends, which are seen to recapture the share lost to conventional grocers during the pandemic.

“Our balance sheet remains solid, net debt remains roughly even with last year and lower than each of the prior two years, even despite our increase in cash return to shareowners in the form of resumed share buybacks and increased dividend. So our financial condition is quite strong,” said Amit Banati, CFO & Principal Financial Officer of Kellogg Company.

The company recently announced a plan to reorganize its North American supply chain network in an effort to increase productivity and offset inflation. Kellogg will spend $45 million to optimize its supply chain, and the plan involves shifting product production to optimal locations.

The company’s management sees potential risks for the upcoming quarters mainly due to inflation together with covid concerns and expects to see more pressure on gross margin in the second half than Kellogg had in the first half. Ken Goldman, an analyst from J.P. Morgan, said that price hikes are a ‘cold comfort’ and expect investors to view food companies with a skeptical eye in the next few quarters.

Fundamentally looking, Kellogg Company trades at less than ten times TTM EBITDA, and with a market capitalization of $21.6 billion, shares of this company are fairly valued. The current dividend yield is around 3.6%, making this stock a solid choice for dividend-oriented investors.

Technical analysis: Kellogg Company shares have weakened from their recent highs above $67

Data source: tradingview.com

Kellogg Company shares have weakened from their recent highs above $67, and if the price falls below $60 support, it would be a strong “sell” signal. On the other side, if the price jumps above $65, it would signal trading shares, and the next target could be around $67 or even 70.

Summary

Kellogg Company is in a good position to grow its business; still, its management sees potential risks for the upcoming quarters mainly due to inflation and covid concerns. The company recently announced a plan to reorganize its North American supply chain network to increase productivity and offset inflation.

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