Kellogg Company

K Details

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

Strong Performance in Q2FY21 (For the Period Ended 3 July 2021)

• The company has reported stronger than expected results in Q2FY21 and net sales increased by 2.6% YoY supported by the benefit of favorable foreign currency translation.
• Reported diluted earnings per share rose by 8.8% YoY driven by favorable mark to market impacts as compared to the prior year.
• The company mentioned that currency-neutral adjusted operating profit fell by 15%, post excluding the impact of the mark-to-market, business as well as portfolio realignment, and foreign currency translation.

Consolidated Income Statement (millions, except per share data) (Source: Company Report)

Recent Update

• The company's brand, Pringles®, has joined one of the major men's health charity - Movember to carry out further open conversations regarding men's mental health by expanding support  in the U.S.
• The company along with Albertsons Companies, one of the major food and drug retailers in the United States, have again formed a partnership to address the prevailing problem of childhood hunger in the communities they serve. K has donated $120,000 towards the effort.

Key Risks

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

Outlook

In the release dated 5^th August 2021, it was mentioned that, driven by the benefit of acceleration in the underlying business, the company has raised its guidance on net sales for 2021. It estimates organic net sales growth to be between 0-1% in 2021 against its earlier forecast of flat net sales. However, it has affirmed its outlook for operating profit, earnings per share, and cash flow to reflect the higher-cost business environment.

Meanwhile, the company intends to release its Q3FY21 financial results on 4^th November 2021.

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 6-month and 9-month return of ~-0.85% and ~+1.12%, respectively. The stock is trading near 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). A slight premium has been applied to EV/Sales Multiple (NTM) (Peer Average) considering its decent financial performance in Q2FY21 as well as decent outlook.

Considering the facts above, we give a “Buy” recommendation on the stock at the closing market price of $61.60 per share, down 0.21% as of 26^th October 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