Brand Loyalty And Strategic Moves To Drive Sustainable Growth In Emerging Markets

Key Takeaways

• Focusing on cakes and pastries expansion in emerging markets could drive revenue growth, especially through strategic acquisitions.
  
• Sustainable packaging and new product innovation could enhance brand differentiation, supporting long-term earnings growth despite cost pressures.
  
• High cocoa costs and volume declines in key regions, coupled with challenges in emerging markets and price elasticity concerns, could pressure margins and revenue growth.

Catalysts

Through its subsidiaries, manufactures, markets, and sells snack food and beverage products in the Latin America, North America, Asia, the Middle East, Africa, and Europe.

• Mondelez International is focusing on expanding its presence in the fast-growing cakes and pastries category, specifically through acquisitions like Evirth in China, which could drive revenue growth in emerging markets.
  
• The company is leveraging its strong brand loyalty and launching new products like the Coke-flavored Oreo, which is expected to drive consumer and customer engagement, potentially boosting revenue.
  
• Mondelez is enhancing its revenue growth management (RGM) strategies to maintain consumer interest and adapt to pricing pressures, influencing both revenue and net margins.
  
• By focusing on sustainable packaging initiatives, like recyclable paper packaging for the LU biscuit brand, Mondelez aims to differentiate in the market and possibly improve net margins through cost efficiencies and consumer preference.
  
• Despite cocoa cost pressures, Mondelez plans to manage these headwinds with strategic pricing, productivity improvements, and cost management to support earnings growth in the long term.

Mondelez International Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mondelez International's revenue will grow by 4.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.6% today to 12.9% in 3 years time.
• Analysts expect earnings to reach $5.3 billion (and earnings per share of $4.04) by about November 2027, up from $3.8 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.7x on those 2027 earnings, up from 22.7x today. This future PE is greater than the current PE for the US Food industry at 20.0x.
• Analysts expect the number of shares outstanding to decline by 0.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.92%, as per the Simply Wall St company report.

Mondelez International Future Earnings Per Share Growth

Risks

• The company is facing risks associated with high cocoa costs, which could put significant pressure on margins and impact earnings, particularly in its chocolate sector.
  
• There are concerns about the volume decline in North America, where lower-income consumers are pressured by high food prices, potentially affecting revenue from key regions.
  
• Emerging markets face challenges, with issues like boycotts of Western brands affecting revenue growth, particularly in regions such as AMEA and Mexico.
  
• There is a possibility of increased elasticity in response to necessary price hikes, especially in developed markets, which could negatively impact revenue and market share.
  
• While there is optimism in regions like China, economic uncertainty and channel shifts could pose challenges to consistent volume/mix growth, potentially impacting future revenues.

Valuation

• The analysts have a consensus price target of $80.36 for Mondelez International based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $92.0, and the most bearish reporting a price target of just $75.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $41.2 billion, earnings will come to $5.3 billion, and it would be trading on a PE ratio of 23.7x, assuming you use a discount rate of 5.9%.
• Given the current share price of $64.88, the analyst's price target of $80.36 is 19.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.