General Mills (GIS) Annual Valuation – 2014

200px-General_Mills_logo.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how General Mills fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): General Mills, Inc. (General Mills) is a manufacturer and marketer of branded consumer foods sold through retail stores. The Company is also a supplier of branded and unbranded food products to the foodservice and commercial baking industries. The Company manufactures its products in 15 countries and markets them in more than 100 countries. The Company’s joint ventures manufacture and market products in more than 130 countries and republics worldwide. General Mills operates in three segments: U.S. Retail, International, and Bakeries and Foodservice. In addition, the Company sells ready-to-eat cereals through its Cereal Partners Worldwide (CPW) joint venture. In February 2012, General Mills acquired Food Should Taste Good, a natural snack foods company based in Needham Heights, Mass. During the fiscal year ended May 27, 2012, the Company acquired a 51% interest in Yoplait S.A.S. and a 50% interest in Yoplait Marques S.A.S. In August 2012, it acquired Yoki Alimentos SA.

GIS Chart

GIS data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $51.25
MG Value $52.33
MG Opinion Fairly Valued
Value Based on 3% Growth $38.54
Value Based on 0% Growth $22.59
Market Implied Growth Rate 5.39%
Net Current Asset Value (NCAV) -$19.57
PEmg 19.28
Current Ratio 0.97
PB Ratio 5.01

Balance Sheet – 2/23/2014

Current Assets $4,557,600,000
Current Liabilities $4,683,600,000
Total Debt $7,179,600,000
Total Assets $22,925,000,000
Intangible Assets $13,660,600,000
Total Liabilities $16,617,300,000
Outstanding Shares 616,200,000

Earnings Per Share

2014 (estimate) $2.80
2013 $2.79
2012 $2.35
2011 $2.71
2010 $2.24
2009 $1.90
2008 $1.87
2007 $1.59
2006 $1.45
2005 $1.54
2004 $1.38

Earnings Per Share – ModernGraham

2014 (estimate) $2.66
2013 $2.52
2012 $2.33
2011 $2.24
2010 $1.94
2009 $1.75

Dividend History

GIS Dividend Chart

GIS Dividend data by YCharts


General Mills is not suitable for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company’s current ratio is too low and the PB ratio is too high.  For the Enterprising Investor, the company holds too much debt relative to its current assets.  As a result, value investors seeking to follow the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities through a review of 5 Outstanding Dow Components and 5 Low PEmg Companies for the Defensive Investor.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg normalized earnings) from $1.94 in 2010 to an estimated $2.66 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 5.39% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on General Mills (GIS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in General Mills (GIS) or any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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