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Key Points

  • General Mills had a solid quarter, outperforming the consensus, widening margins, and guiding cautiously. 
  • Capital returns are strong and growing, with a pivot back to revenue growth coming soon.
  • The stock price confirmed a reversal following the release, indicating higher prices are coming.  
  • 5 stocks we like better than General Mills

General Mills NYSE: GIS stock made a hasty retreat in 2023 as peak inflation, growth and margin fears undercut the market, but now a complete reversal is in play. The company’s FQ3 results are better than expected, highlighting the deep-value, high-yield opportunity it presents. General Mills trades at a discount to consumer staples peers and the broad market and pays a growing distribution with an above-average yield. 

The technical action suggests a move of $7.50 to 1200 basis points above the critical resistance point, putting the target in a range of $76 to $78 without the impact of a price-multiple expansion. If the market follows through on the early move, this stock could easily exceed the technical targets as it resumes the trend. In this scenario, General Mills’ stock price could trend higher through year-end to retest the all-time high, a gain of nearly 30%. 

General Mills Will Pivot Back To Growth Soon

General Mills had a solid quarter, outperforming expectations and guiding to flat results this year. The takeaway is that the contraction in business is bottoming, and a pivot back to growth is at hand. That pivot won’t happen until F2025, but that period will begin soon, mid-year calendar 2024, and the guidance may be cautious. 

The Q3 revenue is down 1% YOY but strong at $5.1 billion, 260 basis points above the Marketbeat.com consensus estimate and 7% higher compared to two years ago. Strength is driven by a slight improvement in price/mix offset by volume decline. Segmentally, all segments except North American Food Services contracted low-single-digits. NAFS grew by 1%. 

The revenue strength is good, and the margin news is better. The company’s Accelerate strategy is gaining traction and significantly improved gross and operating margins on a GAAP and adjusted basis. Adjusted gross margin widened by 20 bps, which is not much but is compounded by a 370 bps improvement in the adjusted operating margin. The operating income grew by 14% and net income by 21%, leaving adjusted earnings up 20% despite the YOY decline and 1100 bps ahead of consensus. 

The guidance was reaffirmed, putting the target for revenue flat at -1% to 0% growth and revenue up 4% to 5%. The comp to last year is weak at this level, setting the bar low. Given the strengths seen in Q1, the guidance is likely cautious and easily beaten. 

General Mills Capital Returns Are Growing And Drive Value

General Mills’ capital returns are robust and drive value for shareholders. The 3.45% yield is the tip of the iceberg, including distribution growth, share repurchases, and share repurchase growth. Repurchases are up 33% this year on a YTD basis and have reduced the count by 3%. The dividend is reliable at 52% of the earnings, and share repurchases can continue despite using debt. 

Capital use exceeded cash from operations on a YTD basis, but the balance sheet is in good shape, and no red flags were raised. The cash balance is down, and the debt is up, but leverage remains low at 1.16X equity, with growth back in the picture. The consensus of twenty analysts forecast the company will grow revenue and widen margin in F2025 and F2026. 

General Mills Stock Price Is In a Reversal and Can Move Higher

The technical outlook for General MIlls’ stock price is favorable because the market formed a Double Bottom Reversal Pattern over the last two quarters and confirmed the reversal ahead of the earnings release. The market broke above the baseline of the pattern, bringing targets near $76.50 into play. Because the market is reverting to the trend, it should be able to sustain support at this level. In this scenario, the market could trend back to an all-time high by year-end or early 2025. If not, GIS stock could be capped at the $75 level and become range-bound for the foreseeable future. 

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