Food Processing Stocks

General Mills Inc Valuation – February 2019 $GIS

Company Profile (excerpt from Reuters): General Mills, Inc., incorporated on June 20, 1928, is a manufacturer and marketer of branded consumer foods and pet food products sold through retail stores. The Company is a supplier of branded and unbranded consumer food products to the North American foodservice and commercial baking industries. It also provides pet food products through its subsidiary Blue Buffalo Pet Products Inc. The Company has four segments: U.S. Retail, International, Pet operating, and Convenience Stores and Foodservice. The Company offers a range of food products with a focus on categories, including ready-to-eat cereal; convenient meals, including meal kits, ethnic meals, pizza, soup, side dish mixes, frozen breakfast and frozen entrees; snacks, including grain, fruit and savory snacks, nutrition bars and frozen hot snacks; yogurt, and super-premium ice cream. The Company’s other product categories include baking mixes and ingredients, and refrigerated and frozen dough. The Company’s products are marketed under various brands, which include Annie’s, Betty Crocker, Bisquick, Bugles, Cascadian Farm, Cheerios, Chex, Cinnamon Toast Crunch, Cocoa Puffs, Cookie Crisp, Fiber One, Food Should Taste Good, Fruit by the Foot, Fruit Gushers, Fruit Roll-Ups, Gardetto’s, Go-Gurt, Gold Medal, Golden Grahams, Haagen-Dazs, Helpers, Jeno’s, Jus-Rol, Kitano, Kix, La Saltena, Larabar, Latina, Liberte, Lucky Charms, Muir Glen, Nature Valley, Oatmeal Crisp, Old El Paso, Pillsbury, Progresso, Raisin Nut Bran, Total, Totino’s, Trix, Wanchai Ferry, Wheaties, Yoki and Yoplait. It also provides food products for dogs and cats through its subsidiary.

Downloadable PDF version of this valuation:

ModernGraham Valuation of GIS – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $27,927,852,744 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.58 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 24.28% Fail
6. Moderate PEmg Ratio PEmg < 20 16.09 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.05 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.58 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -3.98 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.91
MG Growth Estimate 2.72%
MG Value $40.53
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $42.18
MG Value based on 0% Growth $24.72
Market Implied Growth Rate 3.79%
Current Price $46.80
% of Intrinsic Value 115.48%

General Mills, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.46 in 2015 to an estimated $2.91 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 3.79% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into General Mills, Inc. revealed the company was trading above its Graham Number of $24.85. The company pays a dividend of $1.96 per share, for a yield of 4.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 16.09, which was below the industry average of 26.71, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-31.71.

General Mills, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$31.71
Graham Number $24.85
PEmg 16.09
Current Ratio 0.58
PB Ratio 4.05
Current Dividend $1.96
Dividend Yield 4.19%
Number of Consecutive Years of Dividend Growth 14

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Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2018
Total Current Assets $4,233,800,000
Total Current Liabilities $7,298,100,000
Long-Term Debt $12,208,600,000
Total Assets $30,384,000,000
Intangible Assets $21,221,000,000
Total Liabilities $23,404,600,000
Shares Outstanding (Diluted Average) 604,500,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.65
May2018 $3.64
May2017 $2.77
May2016 $2.77
May2015 $1.97
May2014 $2.83
May2013 $2.79
May2012 $2.35
May2011 $2.70
May2010 $2.24
May2009 $1.90
May2008 $1.86
May2007 $1.59
May2006 $1.45
May2005 $1.54
May2004 $1.30
May2003 $1.22
May2002 $0.67
May2001 $1.14
May2000 $1.00
May1999 $0.85

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.91
May2018 $2.96
May2017 $2.62
May2016 $2.54
May2015 $2.46
May2014 $2.67
May2013 $2.52
May2012 $2.33
May2011 $2.23
May2010 $1.93
May2009 $1.74
May2008 $1.62
May2007 $1.48
May2006 $1.36
May2005 $1.27
May2004 $1.11
May2003 $1.00

Recommended Reading:

Other ModernGraham posts about the company

General Mills Inc Valuation – May 2018 $GIS
General Mills Inc Valuation – January 2017 $GIS
General Mills Inc Valuation – August 2016 $GIS
27 Companies in the Spotlight This Week – 4/4/15
General Mills Inc. Annual Valuation – 2015 $GIS

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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