Should I buy General Mills shares after the company reported strong FQ1 results?

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 26, 2021
  • General Mills reported better than expected first fiscal quarter results last week
  • Evercore ISI assigned a $65 price target on GIS shares
  • General Mills shares remain in a buy zone

General Mills, Inc. (NYSE: GIS) shares have advanced again above $60 resistance after the company reported better than expected first fiscal quarter results last week, while the company’s management remains very optimistic about the upcoming quarters in terms of growth.

Fundamental analysis: Evercore ISI assigned a $65 price target on GIS shares

General Mills, Inc. is an American multinational manufacturer and marketer of branded consumer foods, including Gold Medal flour, Annie’s Homegrown, Betty Crocker, Yoplait, Colombo, among others. General Mills reported better than expected first fiscal quarter results on Wednesday; total revenue has increased by 4.1% Y/Y to $4.54 billion, while the GAAP EPS was $1.02  (beats by $0.15).

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Total revenue has increased above expectations (+240 million), organic sales rose 2% to smash the consensus mark of -4.5%, and it is important to say that the pet business stood out with 25% sales growth during the quarter. Despite this, adjusted gross margin weakened 150 basis points during the quarter to 34.7% of sales mainly due to inflation and higher supply chain costs.

Positive information is that General Mills expects that organic sales for the 2022 fiscal year should be higher than the company’s initial guidance range of -1% to -3%. Earnings per share should also be higher than the company’s initial guidance range of -2% to -4%.

The research company Evercore ISI reported that this is still conservative guidance from General Mills and assigned a $65 price target on GIS shares.

“We are increasing our FY22e organic sales estimates from -1% to +1% (3-year from 7.5% to 9.5%; cons 7%) and also raise gross margins from 33.9% to 34% (- 80bps YoY; cons. 34.3%). While the company is expecting higher inflation in F2H22 to dampen EPS upside, we believe their guidance is conservative, and we expect strong pricing combined with HMM cost savings to offset inflation,” said David Palmer, an analyst from Evercore ISI.

General Mills began the second fiscal quarter in a strong position, the company’s 3.3% dividend looks safe, and management remains very optimistic about the upcoming quarters in terms of growth which is certainly positive for shareholders. Fundamentally looking, General Mills trades at less than ten times TTM EBITDA, and with a market capitalization of $36.67 billion, shares of this company are fairly valued.

Technical analysis: General Mills shares remain in a buy zone

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Data source: tradingview.com

General Mills shares have advanced again above $60 after the company reported better than expected first fiscal quarter results last week, and if the price jumps above $65 resistance, we have the open way to $70.

Summary

General Mills reported better than expected first fiscal quarter results on Wednesday, and the research company Evercore ISI assigned a $65 price target on GIS shares. General Mills shares remain in a buy zone, and if the price jumps above $65 resistance, we have the open way to $70.

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