UKRAINE - 2021/03/30: In this photo illustration the Kellogg Company (doing business as Kellogg's) ... [+]
Up a little over 1.2x from its low in March 2020, at the current price of $66 per share, we believe Kellogg Company stock (NYSE: K) has further upside potential. Kellogg, a multinational food manufacturer, has seen its stock rise from $55 to $66 off its March 2020 low, much less than the S&P which increased by over 85% from its lows. Further, the stock is still at the same level it was at before the pandemic. We believe that Kellogg stock could rise at least 10% to new levels above its recent high of $73, driven by expectations of steady demand growth and strong Q1 2021 results. Our dashboard What Factors Drove 16% Change In Kellogg Company Stock Between 2018 And Now? has the underlying numbers behind our thinking.
Stock Prices
Kellogg stock’s rise since late 2018 came due to a 2% rise in revenues from $13.5 billion in FY 2018 to $13.8 billion in FY 2020. Rising costs saw net margins drop from 9.9% to 9.1% over this period, and combined with a 1% drop in the outstanding share count, EPS (earnings-per-share) dropped 5% from $3.85 in FY 2018 to $3.65 in FY 2020.
Further, Kellogg’s P/E (price-to-earnings) multiple rose from 15x in 2018 to 17x by 2020 end, and has since further risen to 18x. We believe that the company’s P/E ratio has the potential to rise further in the near term on expectations of continuing demand growth and a favorable shareholder return policy, thus driving the stock price higher.
Where Is The Stock Headed?
The global spread of Coronavirus did not hamper cereal sales, and further with the widespread vaccinations and economies opening up, Kellogg’s sales stand to benefit further. This is evident from Kellogg’s Q1 2021 earnings, where revenue came in at $3.58 billion, up from $3.41 billion for the same period last year. Operating income came in roughly unchanged at around 13%, and further combined with a roughly unchanged effective tax rate, EPS rose to $1.07 from $1.01.
Additionally, with the lockdowns being lifted and the steady continued growth in demand for breakfast and cereal food products, we believe the company’s revenues stand to benefit further in the medium term. Additionally, if the company is able to continue controlling expenses going forward, a rise in investor expectations could drive up the company’s P/E multiple. We believe that Kellogg Company stock can rise at least 10% from current levels, to set new highs above $73.
While Kellogg stock may move higher, it is helpful to know how its peers stack up. Kellogg Company Stock Comparison With Peers summarizes how Kellogg compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.
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