Goldman Sachs Loves Everything About Mondelez...Except For Its Stock

In a new report on Friday, Goldman Sachs analyst Jason English had plenty of good things to say about global food giant Mondelez International Inc MDLZ. So why did Goldman decide to downgrade the stock from Buy to Neutral? Here’s what English had to say.

Cost-cutting
Despite headwinds from forex, near-term divestiture dilution and organic sales challenges, English praises Mondelez for the effectiveness of its recent cost-cutting initiatives. Management now has the company running lean, and Goldman believes that Mondelez’s ambitious goal of 15-16 percent EBIT margins is now within reach.

Strong growth trajectory
English believes that Mondelez is well-positioned to capitalize on the growth potential of both global snacking trends and emerging market development. In fact, Goldman is projecting double-digit earnings per share (EPS) growth for Mondelez in coming years.

In the report, English raises Goldman’s fiscal 2015 EPS estimate by 2 percent and raises the firm’s price target for the stock from $43 to $46.

Fully valued
If you’re wondering why Goldman would ever downgrade the stock of a company with so many strengths, the answer comes down to one single issue: valuation. Mondelez’s stock is up more than 23 percent in 2015, and the stock has climbed 66 percent since Goldman placed it on the firm’s Americas Buy List on October 1, 2012. During that time, the S&P 500 has gained only 44 percent in comparison.

“We now see greater upside elsewhere in coverage,” English explains. With a price to earnings ratio (PE) now sitting at 32.4, English believes that the effects of the cost-cutting measures and the strong earnings growth projections are already fully priced into Mondelez’s shares.