Undervalued

6 янв. 2019 г.

General Mills Inc (GIS)
View: Long Term
Uncertainty: Low
Main Confluence: Correction, Financials, New Acquisition
Current Price: 39.82
Entry: $35 per share
Fair Market Value: $57
Undervalued: 30%
Sale Mandate 1: $50
Sale Mandate 2: $60
Sale Mandate 3: $80
General Mills manufactures branded consumer foods, like ready-to-eat cereals, convenient meals, snacks, yogurt, baking mixes, and ice cream, to retail and food-service customers. Its key brands include Cheerios, Betty Crocker, Haagen-Dazs, Pillsbury, Nature Valley, Old El Paso, Annie’s, and Yoplait. The North America retail segment contributed roughly two thirds of sales and above three fourths of operating profits in fiscal 2018. More than 70% of General Mills’ revenue is generated in the United States. The firm is poised to bolster its presence in the natural and organics aisle with its acquisition of Blue Buffalo (now its pet segment), a natural pet food brand.
The acquisition of Blue Buffalo (a natural pet food firm) stands to prop up the firm's top line, as humanization and premiumization trends have fueled 5% compound annual growth for U.S. pet food sales over the past decade, without compromising its efforts to strengthen its bottom line. General Mills is targeting $750 million of annual savings (including $50 million of synergies from the Blue Buffalo deal), or around 6% of General Mills' fiscal 2018 cost of goods sold and operating expenses, excluding depreciation and amortization. This should free up resources to bolster its brand spending, which we view as crucial for the company to restore top-line growth. We expect the firm’s combined expenditures on advertising and research and development will average above 7% of sales over the next decade, versus a five-year historical average slightly below 6%. These investments should help the firm launch new or reformulated products that better resonate with consumers and justify the value (and therefore pricing) of its offerings over private-label fare.
Prices are currently on a correction- bullish run on the intra-week and intra-day time frames. There is a key support/resistance level at $41 -$42 per share which is also in line with the key Fibonacci level. There is also a bearish trend line on the daily time frame, therefore we can expect further downside from $41-$42 per share to retest the 2010 lows of $35 per share. If price re-tests $35 we will seek bullish PA confirmation to plan our entries to our anticipated sale mandates, Fair Value and possible new high of $85 a share. For each target different management strategies will be utilised.
However, if price continues it’s bullish momentum and closes above the bearish daily trendline (above $43 a share) then we will anticipate a retest of the trend line followed by bullish confirmation before entries executed for the upside. As it stands we expect price to retest the 2010 lows before any bullish confirmation arises.