Kellogg Company

K Details

Kellogg Company (NYSE: K) is a leading manufacturer of snacks, cereal, and frozen foods. Its brands include Pringles, Cheez-It, Special K, Kellogg's Frosted Flakes, and Kellogg's Corn Flakes.

Result Performance for the Third Quarter Ended 2 October 2021 – (Q3FY21)

• The net sales stood at $3,622 million in Q3FY21, up 6% YoY, led by positive price/mix in all four Regions and robust YoY volume growth in emerging markets like Africa, Russia, and Brazil. On an organic basis, which excludes the impact of currency, net sales increased 5% YoY.
• Reported earnings per share decreased by ~12% YoY, mainly led by higher mark-to-market expense, partially nullified by higher net sales and operating profit, as well as lower average shares outstanding. On an adjusted basis, earnings per share grew ~20% YoY and excluding currency translation, adjusted earnings per share rose by 18% YoY.
• Year-to-date net cash provided by operating activities stood at $1,145 million.

Source: Company Reports, Analysis by Kalkine Group

Outlook

As per the company, organic net sales growth will be 2-3% in FY21, implying a 2-year CAGR of over 3%. The currency-neutral adjusted operating profit will decline by (1)%-(2)% YoY, meaning a 2-year CAGR of ~4% excluding since-divested businesses from the 2019 base. The currency-neutral adjusted earnings per share will be +1-2% growth, implying a 2-year CAGR of ~5% excluding since-divested businesses from the 2019 base. The net cash provided by operating activities will be $1.6-$1.7 billion, with a capital expenditure of ~$0.5 billion. As a result, the outlook for cash flow is $1.1-$1.2billion.

Key Risks

A shift in consumer purchases to more generic, lower-priced, or other value offerings would adversely impact its sales. A strengthening of the U.S. dollar against a specific country’s currencies would hurt its operations and financial results. Fluctuation in commodity and other input costs may significantly affect its result of operations.

Valuation Methodology: EV/Sales Based Relative Valuation (Illustrative)

Technical Overview

Daily Price Chart

Source: REFINITIV, Note: Purple color line reflects Relative Strength Index (14-Period)

Stock Recommendation

The company has delivered a 6-month and 1-year return of ~-7.19% and ~-1.26%, respectively. The stock is trading lower than the average of the 52-week high price of $68.60 and the 52-week low price of $56.61.

The stock has been valued using EV/Sales multiple-based illustrative relative valuation, and the target price so arrived reflects a rise of low double-digit (in % terms). In addition, a slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average), considering its decent financial performance in Q3FY21 along with the improved net sales guidance for FY21.

Considering the facts above, we give a “Buy” recommendation on the stock at the closing market price of $61.93 per share, up 1.47% as of 2^nd December 2021.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices