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Kellogg Stock Snags a Buy Rating. Thank the Cereal Spinoff.

Kellogg
stock was climbing Tuesday after gaining a bull who says the food company’s cereal spinoff plans offer growth potential.

Goldman Sachs analysts led by Jason English upgraded shares of
Kellogg
(ticker: K) to Buy from Neutral and lifted their price target to $83 from $78.

Kellogg stock rose 1.8% to $66.79 in recent trading. So far this year, the stock has shed 6.3%.

Food companies have performed well over the past few years, thanks to inflation-driven price increases, English noted.

“Growth, however, is about to become scarce in the industry as price fades and volume growth remains lacking for most,” he added. Kellogg, however, is different, due to “favorable end-market exposure and strong business momentum.”

That being said, the company is still valued below its competitors. Despite Kellogg’s strong potential to gain market share over the next decade, the stock trades at a price-to-earnings ratio of 16.4 times, the analyst noted, while the food industry average is 18.6 times. In comparison, competitors
Mondelez International
(MDLZ) and
Hershey
(HSY) trade at 20.9 times and 24.4 times, respectively.

“We believe concern about stranded costs from its planned spinout of its North
American cereal business has created this buying opportunity, as it is overshadowing the underlying growth outlook for the business,” the analyst wrote.

Plans to split off the North American cereal business were announced last June. Putting aside that segment, Kellogg’s organic sales growth has made strides since 2018, English noted.

“We believe this business will settle into 4-5% organic sales growth rates when industry growth normalizes next year,” he continued.

In May, Kellogg posted better-than-expected adjusted earnings for its first quarter, and said it expects to complete the spinoff of its cereal business during the fourth quarter.

Analysts are mixed on the stock. Of those surveyed by FactSet, 15% rate shares as Buy, 70% as Neutral, and 15% as Sell.

Write to Emily Dattilo at [email protected]

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