Don’t Overlook General Mills (NYSE: GIS) Shares

Growth has been en vogue for much of 2020. E-commerce growth to be specific.

You definitely want exposure to those high-flying growth stocks. They’ve created fortunes in 2020 and will continue to do so in 2021.

But a lot of investors are overlooking the tried and true, leading to some outstanding value. General Mills NYSE: GIS, set to report its earnings tomorrow, is an excellent value proposition right now.

I’m expecting a strong earnings report that will draw investors’ eyes back onto General Mills and make them realize that even though shares have stagnated, business certainly hasn’t.

General Mills Hasn’t Moved Much in 2020

It seems like every stock in the market made a giant V-shaped move in the early stages of the pandemic. But General Mills wasn’t one of them. Over the first three months of 2020, shares never went below $45 or above $59. Since April, shares have been rangebound between around $55 and $65.

While the market has constantly set fresh all-time highs since August, General Mills shares have been in pullback mode over the past 4+ months.

The Value is There

General Mills is currently trading at 16.2x forward earnings and 2.1x forward sales.

On top of that, the company recently upped its quarterly dividend by 4.1% to 51 cents a share. That works out to $2.04 per year and an annual yield of 3.34%. Not too shabby considering what you get on Treasuries these days.

Slow and Steady Wins the Race

General Mills’ growth rates aren’t going to knock your socks off, but the company is coming off of an impressive Q1 2021 (the period ending August 31, 2020).

For the quarter, General Mills earned $1 per share, up 26.6% yoy and well above analyst estimates of 87 cents. Revenue of $4.36 billion was up 9% yoy, and compared favorably to estimates of $4.21 billion.

General Mills has beaten consensus earnings estimates for the last 10 straight quarters, but has met or exceeded revenue estimates for just 3 of the last 10 quarters. That said, revenue has come in above expectations for each of the previous two quarters.

Q2 2021 Beat Could Be in the Cards

Analysts are expecting revenue of $4.64 billion, up 4.9% yoy, and earnings of 96 cents per share, up 1.1% yoy.

With coronavirus cases peaking and the weather getting colder, people haven’t been going out to eat much over the past few months. This means that General Mills’ snacks, cereals, and other packaged foods have likely been flying off the shelves.

I’m expecting both an earnings and revenue beat from General Mills tomorrow. The earnings beat is certainly priced in based on recent history, but the revenue beat may not be. If General Mills reports, say, 8-12% revenue growth, it could cause shares to leap higher.

Pet Products Gives General Mills Upside

General Mills is probably not going to run off a few years of double-digit revenue growth. But its 2018 acquisition of Blue Buffalo Pet Products can help General Mills approach that level.

The pet food industry is booming and shows no signs of slowing down; people are increasingly treating their pets like members of the family. The Blue Buffalo acquisition, which cost General Mills $8 billion, already looks like a solid deal. It could look like an absolute bargain in a few years.

The Analysts Like General Mills

The market, as a whole, may be casting General Mills aside, but the average price target has increased over the past three months and the past six months. The $63.47 consensus price target would give shares 7.52% upside from here.

If anything, I think that number is a bit too conservative. The current P/E ratio and future growth potential could easily justify a forward P/E ratio of around 20. That would take shares to around $72.

The Final Word

I’m not expecting any shocking revelations in tomorrow’s earnings report. But a revenue beat could send shares a point or two higher. That would be reason enough to get into General Mills ahead of the release. But another reason to get in now is because it’s only a matter of time before the market takes notice of General Mills’ value.