Cereal Brand Gets Soggy After Kellanova Spin-Off, Analyst Blames Headwinds On Debt

Shares of WK Kellogg Co KLG declined in early trading on Tuesday, after its launch as a publicly-traded company following a separation from Kellanova K.

A long productivity ramp and front-loaded debt build are likely to weigh on the stock, according to Goldman Sachs.

The WK Kellogg Analyst: Jason English initiated coverage of WK Kellogg with a Sell rating and price target of $11.

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The WK Kellogg Thesis: Although the company could generate meaningful margin expansion in the near term, its productivity programs are likely to be back-end loaded in fiscal 2026 and “partially predicated on a manufacturing network rationalization that is currently impeded by the plant closure moratorium that it entered into with its unions in late 2021,” English said in the initiation note.

The plant closure moratorium expires in 2026, when the contract is subject to renewal, he added.

“Overlay a weak demand backdrop and market share challenges and we expect KLG’s NTM EBITDA forecast to remain range-bound through FY24-end,” the analyst wrote. “We expect net debt, however, to rise by over $200 mn over that duration, thereby creating a $200+ mn headwind to its equity value,” he further stated.

KLG Price Action: Shares of WK Kellogg had declined by 6.07% to $12.54 at the time of publication Tuesday.

Image: WK Kellogg