A Top Consumer Staples Compounder and at a Fair Price and Dividend Yield

Catalysts:

1. Stable Demand for Packaged Foods: General Mills operates in the consumer foods sector, which has seen consistent demand for packaged foods. The company’s diverse product portfolio, including ready-to-eat cereals, snacks, and baking mixes, positions it well to benefit from this trend.
2. Attractive Dividend Yield: General Mills has a history of paying dividends, making it appealing to income-seeking investors. The company’s commitment to growing dividends provides stability and potential returns for shareholders.
3. Cost Efficiency and Margin Improvement: General Mills has been working on cost-saving initiatives and improving operational efficiency. These efforts can lead to margin expansion and better profitability.
4. Food-at-Home Consumption: The expectation that the macroeconomic backdrop will worsen before improving may favor food-at-home consumption. General Mills anticipates volume improvements due to pricing adjustments and market conditions.

Risks:

1. Challenging North American Retail Volume: Weakness in North American retail volume remains a concern. Competitors’ enhanced shelf availability and a reduction in SNAP benefits have impacted General Mills’ volumes.
2. Impact of GLP-1: The company faces challenges related to GLP-1, which may affect its performance.
3. Challenging M&A Landscape: General Mills operates in a competitive M&A environment. Despite flexibility in its balance sheet, the company has been outbid on deals due to high prices.
4. Risk to Fiscal 2024 Guidance: Uncertainties in the economic environment could pose risks to General Mills’ fiscal 2024 guidance.
5. Elevated Valuation Compared to Peers: General Mills’ valuation is relatively high compared to its peers, which may limit upside potential.

In summary, General Mills offers stability through its diversified product range and dividend yield. However, challenges in retail volume, GLP-1 impact, and valuation should be carefully considered by investors.

Assumptions

Revenue in 5 Years:

• General Mills has shown consistent revenue growth over the years. In 2023, their annual revenue was $20.094 billion, a 5.8% increase from 2022.
• Assuming this trend continues, we can project their revenue in 5 years by considering historical growth rates. However, keep in mind that external factors (e.g., market conditions, competition) can impact this projection.
• Based on historical data, a conservative estimate might be around $22 billion to $23 billion in annual revenue in 5 years.

Earnings in 5 Years:

• General Mills’ recent fiscal fourth-quarter earnings (as of June 2024) were $557.5 million, with net income of 98 cents per share.
• Their annual EPS for 2023 was $4.31, a decline from 2022.
• To estimate earnings in 5 years, we’ll consider both revenue growth and cost management. Assuming moderate growth and efficient operations, a reasonable projection could be an EPS of $4.50 to $5.00.

Valuation

Business Outlook:

• In 3 years: General Mills will likely continue expanding its product portfolio, exploring new markets, and optimizing operations. It may focus on sustainability and digital transformation.
• In 5 years: The company could see further growth, possibly through acquisitions or strategic partnerships. Market trends and consumer preferences will play a crucial role.
• In 10 years: General Mills might evolve significantly, adapting to changing demographics, technology, and global dynamics.

Revenue and Profit Margins:

• Revenue growth depends on factors like product innovation, market share, and economic conditions. Conservatively, annual revenue could reach $22 billion to $23 billion in 5 years.
• Profit margins will be influenced by cost management, supply chain efficiency, and pricing strategies. Assuming prudent management, profit margins could remain stable or improve slightly to approximately 13%.

Valuation Multiple:

• Valuation multiples (such as P/E ratio) reflect investor sentiment. If General Mills maintains steady growth and profitability, its multiple could remain around the current level (e.g., P/E of 15-20).