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Kellogg’s Cereal Spinoff Plans Offer Growth Potential


Shares of Kellogg (ticker: K) rose 1.8% to $66.79 in recent trading after Goldman Sachs analysts led by Jason English upgraded the stock to Buy from Neutral and lifted their price target to $83 from $78.

According to English, Kellogg’s cereal spinoff plans offer significant growth potential. While food companies have experienced inflation-driven price increases and performed well over the past few years, growth is likely to become scarce in the industry as price fades and volume growth remains lacking for most. However, Kellogg stands out due to its favorable end-market exposure and strong business momentum.

Despite the fact that Kellogg has shed 6.3% of its stock this year, investors are taking note of the company’s potential for growth.

Kellogg’s Undervaluation

The Kellogg Company always deals with stiff competition from its peers in the food industry. However, despite its tremendous potential for the next decade, the company is still undervalued compared to its competitors. According to an analyst, Kellogg’s stock trades at a price-to-earnings ratio of 16.4 times, while the industry average is 18.6 times. In contrast, the stocks of Mondelez International (MDLZ) and Hershey (HSY) trade at 20.9 times and 24.4 times, respectively.

Meanwhile, Kellogg Company’s plan to spin out its North American cereal business created a buying opportunity, overshadowing the underlying growth outlook for the corporation. The analyst suggests that concern regarding stranded expenses attributed to the spinout led to the buying opportunity.

Despite these issues, Kellogg Company has exhibited prominent growth since 2018. English, an analyst, noted that the corporation’s organic sales growth has made strides and is expected to settle into 4-5% organic sales growth rates once the industry growth normalizes next year.

Kellogg Reports Strong Q1 Earnings

Kellogg Company announced their adjusted earnings for the first quarter of the year, which exceeded expectations. The well-known cereal brand also revealed their plans to complete the spinoff of its cereal business by the end of the year.

However, analysts have mixed opinions on Kellogg’s stock. According to FactSet, only 15% of analysts rate the shares as a Buy, with 70% rating it Neutral, and 15% rating it as Sell.

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