Stock valuation General Mills

The following Stock valuation is about General Mills, a company I have an eye on since a while. Unfortunately I do not have it in my portfolio so far, as it seems a bit overpriced right now. But let’s find out at what price I think it is attractive for me.


General Mills, Inc. (GIS) is a leading global manufacturer and marketer of consumer food products. Its business operates in three segments: U.S. Retail, International, and Bakeries and Foodservice. Its products are manufactured in 15 countries and sold in over 100 countries worldwide. The company owns several brands,including Cheerios, Progresso Soup, Hamburger Helper, and Fruit Roll-Ups.General Mills was established in 1866 and is headquartered Minneapolis, Minnesota. General Mills has increased the dividends since 13 years

Valuation

Currently GIS is priced  at 61.71 USD per share.

Valuation_GIS

If I take the weighted average of the 4 ratios according to the 5  year average the price would be at 50.4 USD. That means the current price is 22.5% above its 5 year average. The 5 year high was at 72.64 USD about 6 months ago, so currently the stock just trades 15.0% below its 5-year high.

The fair market value ratio of packaged foods sector (consumer defensive), according to morningstar is currently at 1.03. If I divide the current price by it I will get a price of 59.9 USD.

Earnings per share growth

In 2011 the EPS were 2.70 USD and EPS in 2016 were at 2.77 USD. This means EPS grew on average by 0.5%. This not really a good growth but if you consider that in 2015 the EPS were just at 1.97 USD. It doesn’t look that bad anymore

Dividend History and Future

GIS has a good dividend history with increasing the dividend for 13 years in a row. In the last 5 years, the average growth per year is 9.7% based on a dividend of 1.12 USD in 2011 and a current full year one of 1.78 USD. The payout ratio with 64.3% will be still on reasonable level. Never the less it is the second time that the payout ratio will be above 50% in the last 10 years.

An important point for my buying decision is as well the dividend yield on cost, which is currently at 3.11% based on the new quarterly dividend of 1.92 USD. After tax my minimum yield, I want to reach within the next 3 years, should be at 2.8%. This means it should have a yield of 3.9% before tax.

Assuming a dividend growth of 7.5% per year the dividend in 2020 will be at 2.39 USD, which means a yield on costs of 3.87% before tax. From this point of view it should be a buy and considering and expected growth 7.3% in their EPS the pay out ratio will be still on todays level.

Conclusion

In general GIS is definitely one of the stocks I will have in my portfolio sooner or later especially as I am not that much invested in that sector. Although the stock is now much cheaper than a couple of months ago I still think that it is a little overpriced. But realistically we will not see prices of around 50 USD (as long as the market does not crash). For me a good entry point would be around 58 USD that means I am hoping for a further decline of 6%

What do you think about GIS? Do you already have it in your portfolio or would you buy it at its current price?

Disclosure: I do not recommend any decision to the reader or any user, please consult your own research. Thank you for your understanding.

4 Comments

  1. Thanks for sharing your analysis on GIS. I haven’t done a complete analysis, but according to F.A.S.T.Graphs the stock is overvalued, which agrees with your assessment. Buying at $58 would be great!

    • Thanks for the comment. I am really hoping for a further decline in the stock price. But let’s see what Mr. Market does 🙂

  2. Very nice analysis. Could you just explain how you get the numbers in that table from which you calculate the weighted target price? I, too, have been tracking GIS for a while looking to add to my Bankdirekt portfolio… by the way, where do you have your portfolio? Online brokers in Austria tend to have loads of hidden fees, let alone how unexpected taxes kill dividend income.
    Keep up the great content on the blog – will continue to visit regularly!

    • Hi, thanks for the comment. Concerning the calculation, I just multiply the current EPS, book value etc. with the 5 year average ratio, to get the information I mainly use morningstar. I use bankdirekt as well, for dividend investing it is the best broker in Austria. Although I don’t like the fees for dividends from Germany and the rest of Europe…

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