Credit Suisse Upgrades General Mills, Says Stock Trades At Too Big A Valuation Gap

The bullish case for General Mills, Inc. GIS is based on a combination of the company's ability to maintain recent sales momentum and shares trading at a discount and , according to Credit Suisse.

The General Mills Analyst: Robert Moskow upgraded General Mills from Neutral to Outperform with a price target lifted from $65 to $67.

The General Mills Thesis: Investors may have "thrown in the towel" on food stocks amid expectations for sales as consumer grocery habits could change after a COVID-19 vaccine is made available, Moskow wrote in the note. While this may be the case for the broader food industry, General Mills is better positioned to retain customers who tried its brands during the pandemic compared to its peers.

General Mills took advantage of cheaper media rates to promote its food products to better connect with customers. The analyst said this should continue in 2021 and help improve the stickiness of recent sales growth.

Management also deserves credit for its "smarter" approach to managing brands. The recent momentum makes it clear which products it should promote as opposed to "blanket renovations" across the portfolio.

From a valuation perspective, shares of General Mills are trading at 16 times P/E versus 18 times in the middle of 2020. The P/E multiple also implies a 36% discount to household products and beverage companies.

"This provides downside protection to investors who choose to dip a toe into the group and potential upside if rising COVID-19 infection rates during the winter leads to re-acceleration in at-home food consumption," the analyst wrote.

GIS Price Action: Shares of General Mills were trading higher by 1.8% Friday at $59.75.

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