Kellogg Company

K Details

Kellogg Company (NYSE: K) is a leading manufacturer of snacks, cereal, and frozen foods.

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

• The company has witnessed 3% YoY growth in net sales supported by the benefit of favorable foreign currency translation.
• It registered a flat reported operating profit compared on the PCP assisted by impact of favorable mark to market and currency translation.
• Reported earnings per share rose by around 9% YoY driven by favorable mark to market and currency translation.

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

Recent Update

• The company along with Albertsons Companies, one of the major food and drug retailers in the United States, has again teamed up to address the prevailing problem of childhood hunger in the communities they serve.

Key Risks

A shift in consumer purchases to more generic, lower-priced, or other value offerings could adversely impact its sales of the higher margin products.

Outlook

Driven by the benefit of acceleration in the underlying business, the company has raised its guidance on net sales. It estimates organic net sales growth to remain between 0-1% in 2021 against its earlier forecast of flat net sales. However, it has maintained its outlook for currency-neutral adjusted operating profit.

The outlook for the net cash provided by operating activities has been unchanged at ~$1.6 - $1.7 Bn, with capital expenditure of ~$0.5 Bn.

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

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

Technical Overview:

Chart:

Source: REFINITIV

Note: Purple Color Line Reflects RSI (14-Period)

Stock Recommendation

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 better net margin in Q2 FY 2021 as compared to the industry median as well as decent outlook.

For this purpose of relative valuation, peers like Hormel Foods Corp (HRL.N), Alico Inc (ALCO.OQ), among others have been considered.

Considering the aforementioned factors, we give a “Buy” recommendation on the stock at the closing market price of $62.16 per share, up by 0.76% on 14^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 unfavourable movement in the stock prices.

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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