GIS Fundamental Research Investment Analysis, General Mills, Inc.

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The Razor's Edge

2-Year Price History

Recent Price
(10/6/2008 4:00 PM)
$68.48
52-Week Price
$51.00 - $72.01
Market Capitalization
$23.4 Billion
Dividend Yield
2.50%
Most Recent Dividend
$1.57

GIS Stock Evaluation

GIS and its peers in the Consumer Goods sector have gained significant ground against the other sectors followed by Ockham, and this has caused us to issue an upgrade at this time. Generally, we are always on the lookout for increasing earnings and decreasing price at the company level. However, sometimes when a company like GIS sees dramatic improvement across its own sector in terms of its valuation against other sectors; we see enough cause for an upgrade. Be sure to additionally review our peer analysis in our Peer Comparison section, which will highlight where the Consumer Goods sector is ranking and includes a peer analysis of GIS.

GIS Revenue

For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at GIS through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 1.78x and 1.43x respectively.

Utilizing this range we can see that GIS’s current Price to Sales per share ratio of 1.65x is somewhat above its historical average. As such, the current Price to Sales ratio suggests a neutral share price forecast. In order for us to become more positive about GIS we would need to see a drop in the Price to Sales ratio of 2% given current sales per share levels in order to return to its historical weighted average.

GIS Cash Earnings

Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. GIS is above its historical average multiple of cash earnings as calculated by Ockham. Similar to our analysis of sales per share, Ockham looks at the last 10 years of cash earnings levels for GIS to identify where the current high and low price levels have been historically in relation to profit per share. Again, we utilize a weighted average methodology which relies more heavily on recent years of data. This weighted average framework provides us with an average high Price to Cash Earnings ratio per share of 14.32 and a 11.48 low over the same period.

Given this range of ratios per share, GIS at its current price of $70.15 and a Price to Cash Earnings ratio of 13.01 is 0% above its average historical Price to Cash Earnings ratio. Obviously this makes us more hesitant about GIS because cash earnings would need to rise to improve the valuation. Likewise, a decline in Price to Cash Earnings to below the average of 12.90 would significantly improve our outlook for GIS given the current profit levels.

GIS Dividends

A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don't require dividend payments for company's whose management has elected to forgo them entirely.

When reviewing dividend yields for GIS, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management's confidence in the company. GIS’s estimated annual dividend is $1.72 resulting in a current dividend yield of 2.45%. The highest dividend yield from GIS over recent history was 3.74% while the lowest dividend yield was 2.08%. It is never a good sign for a company to pay significantly lower dividends, in this case 15.81% below the median yield. Although, dividends are a relatively small portion of our analysis framework, we still see this as a negative factor.

Peer Comparison

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General Mills, Inc. Industry Grouping

(10/3/2008)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding GIS) 13.62 7.78 » 20.58 2.16 1.56 » 12.90 13.84% 37.60%
*10 year range does not include current year values
General Mills, Inc. GIS $23.4 Billion $70.15 13.01 9.46 » 34.91 1.65 1.25 » 8.92 5.38% 20.62%
Kellogg Company K $21.7 Billion $57.21 13.24 9.56 » 15.04 1.67 1.21 » 9.18 7.24% 45.82%
William Wrigley Jr. Company WWY $17.4 Billion $79.77 21.74 13.91 » 23.43 3.45 2.52 » 17.54 14.43% 23.02%
H.J. Heinz Company HNZ $15.8 Billion $50.73 13.04 8.02 » 18.59 1.47 1.02 » 8.07 4.10% 38.08%
Campbell Soup Company CPB $14.3 Billion $39.63 12.31 7.39 » 20.53 1.80 1.71 » 9.47 3.67% 65.46%
Companhia de das Bebidas Americas ADS AmBev PF ABV $13.6 Billion $50.24 7.75 0.00 » 25.30 2.43 1.36 » 20.24 39.76% 15.64%
Current
Rating on:
GIS

Ockham's Rating

While neither the price change (0.78% since our last report) nor the earnings expectations for General Mills, Incorporated (GIS) can cause an upgrade because we already have GIS rated as Greatly Undervalued. We have seen an increase in the attractiveness of GIS's peer group.

Specifically, the Consumer Goods sector has increased in the attractiveness of its valuations versus the other sectors followed by Ockham. This improves our outlook on GIS as well as the other securities within its peer group.

Key Fundamentals

GIS - General Mills, Incorporated Fundamentals
Price (10/6/2008 4:00 PM) $68.48
Volume (10/6/2008 4:00 PM) 5.4 Million
10 Day Average Volume 3.6 Million
13 Week Price Range $60.53 - $72.01
52 Week Price Range $51.00 - $72.01
LTM Revenue $14.1 Billion
 
Shares Outstanding (05/2008) 334.1 Million
Market Capitalization $23.4 Billion
Shares Held By Institutions 277.6 Million
Insitutional Holders 900
% Shares Held By Institutions 83%
Earnings Per Share (EPS) $3.71
P/E Ratio 19.10
Book Value Per Share $18.16
 
Gross Margin 38.20%
Quarterly Dividend 1.72
Dividend Yield 2.50%
Beta 0.15
Fiscal Year Ends May

About General Mills, Inc.

General Mills, Incorporated is considered to operate in the Consumer Goods sector. They specifically operate in the Processed/Packaged Goods business segment contained within the Food & Beverage industry.

The Company is a manufacturer and marketer of branded consumer foods sold through retail stores. It also supplies branded and unbranded food products to the foodservice and commercial baking industries.