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Pick Up This Sturdy Consumer Staple Stock in Times of Trouble

Given the growing concerns over the Fed’s hawkish stance to tame the rising inflation and the possibility of the economy tipping into a recession, it could be wise to invest in fundamentally solid consumer staple stock General Mills (GIS). Consumer staples stocks are seen as recession-proof due to the non-cyclical nature of their offerings. Let’s discuss this in detail…

With a $45.64 billion market cap., General Mills, Inc. (GIS) manufactures and markets branded consumer foods worldwide. The company operates through five segments: North America Retail; Convenience Stores & Foodservice; Europe & Australia; Asia & Latin America; and Pet.

Recently, GIS completed the acquisition of TNT Crust, a manufacturer of high-quality frozen pizza crusts for pizza chains, foodservice distributors, and retail outlets, which is expected to boost the company’s growth and profitability.

The Federal Reserve hiked its benchmark interest rate by 75 basis points last month to fight the 40-year high inflation. Moreover, the Fed has indicated rapid interest-rate hikes to bring down inflationary pressures in the coming months. Investors remain worried that the Fed’s tightening of monetary policy could push the economy into a recession.

Amid the economic slowdown, consumers are cutting back on their spending. However, consumer staples, including food and beverages, household goods, and hygiene products, enjoy a stable demand even in uncertain times. Thus, GIS is expected to perform relatively well amid the ongoing market fluctuations.

In addition, GIS is known for offering steady passive income. Its four-year average dividend yield is 3.59%, and its forward annual dividend of $2.16 translates to a 2.85% yield. Its dividend has grown at a 1.3% CAGR over the past three years and a 1.2% CAGR over the past five years.

Moreover, GIS shares have gained 12.5% year-to-date and 25.9% over the past year to close the last trading session at $75.79. The inelastic demand for consumer staples has contributed to the stock’s rally.

Here is what could influence GIS’ performance in the upcoming months:

Robust Financials

GIS' net sales increased 8.1% year-over-year to $4.89 billion in the fiscal 2022 fourth quarter ended March 29, 2022. The company’s operating profit amounted to $1.02 billion, up 85.5% year-over-year. In addition, its earnings before income taxes and after-tax earnings from joint ventures grew 96.5% from the year-ago value to $940.60 million.

Furthermore, the company’s net earnings attributable to GIS and earnings per share came in at $822.80 billion and $1.35, registering increases of 97.4% and 98.5%, respectively, from the prior-year period.

Favorable Analyst Estimates

Analysts expect GIS' revenue for the fiscal 2023 second quarter (ending November 2022) to come in at $5.16 billion, representing a rise of 2.8% from the same period in 2021. The $1.04 consensus EPS estimate for the next quarter indicates a 5.1% year-over-year increase.

Also, Street expects the company's EPS for the fiscal year 2024 (ending May 2024) to grow 6.7% year-over-over. The company has an impressive revenue and earnings history as it has surpassed the consensus revenue and EPS estimates in three of the trailing four quarters.

High Profitability

GIS’ trailing-12-month EBIT margin of 17.75% is 111.4% higher than the 8.40% industry average. Its trailing-12-month EBITDA margin of 20.76% is 71% higher than the 12.14% industry average. Likewise, the company’s trailing-12-month net income of 14.25% is 178.1% higher than the industry average of 5.13%.

Furthermore, GIS’ trailing-12-month ROCE and ROTA of 27.06% and 8.71% are higher than the industry averages of 12.38% and 4.73%, respectively.

POWR Ratings Show Promise

GIS has an overall B rating, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree. 

GIS has a B grade for Quality, consistent with its higher-than-industry profitability ratios.

The stock has a C grade for Value. This is justified as in terms of forward P/E, GIS’s 19.15x is 5.6% lower than the 20.29x industry average. However, its 14.89x forward EV/EBITDA is 26.8% higher than the 11.75x industry average.

GIS is ranked #21 out of 89 stocks in the B-rated Food Makers industry.

Beyond what I have stated above, we have also given GIS grades for Sentiment, Growth, Value, and Stability. Get access to all the GIS ratings here.

Bottom Line

The macroeconomic and geopolitical headwinds are unlikely to affect the stock due to the non-cyclical demand for its products. So, given GIS’ high profitability, robust financials, high dividend yield, and impressive revenue and earnings growth estimates, we think adding this stock to your portfolio could be wise now.

How Does General Mills, Inc. (GIS) Stack Up Against its Peers?

GIS has an overall POWR Rating of B. One could also check out these other stocks within the Food Makers industry with an A (Strong Buy) rating: Industrias Bachoco S.A.B. de C.V. (IBA), Grupo Bimbo, S.A.B. de C.V. (GRBMF), and Sanderson Farms, Inc. (SAFM).

GIS shares were trading at $75.79 per share on Monday morning, up $0.34 (+0.45%). Year-to-date, GIS has gained 14.16%, versus a -19.14% rise in the benchmark S&P 500 index during the same period.

About the Author: Mangeet Kaur Bouns

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.


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