Food giant Kellogg Company (K) has paid dividends for 18 consecutive years. Moreover, the stock’s current dividend yield is 3.49%, while its four-year average yield amounts to 3.57%.
Recession fears are widespread amid high inflation, geopolitical tensions, and consecutive rate hikes. However, K reported better-than-expected results, surpassing the consensus revenue and EPS estimates by 4.4% and 3.1% in its last reported quarter.
Moreover, the company increased its outlook for the year. K raised its organic basis net sales’ full-year 2022 growth guidance to around 10%, compared to previously declared 7-8%, and its EPS guidance to approximately 3% from 2%.
Consumer staples like K enjoy a steady demand for their products irrespective of economic condition, which makes them relatively less volatile.
The stock has gained 6.7% over the past year to close the last trading session at $67.31. Moreover, Wall Street analysts expect the stock to hit $69.00, indicating a potential upside of 2.7%.
Here is what could shape K’s performance in the near term:
Steady Financials
K’s net sales came in at $3.95 billion for the third quarter that ended October 1, 2022, up 8.9% year-over-year. Its net income and EPS increased marginally year-over-year to $310 million and $0.90, respectively.
Moreover, its cash and cash equivalents came in at $373 million for the period that ended October 1, 2022, compared to $286 million for the period that ended January 1, 2022.
Favorable Analysts’ Estimates
K’s revenue is expected to increase 6.9% year-over-year to $15.16 billion for the yet-to-be-reported fiscal 2022. Its revenue is expected to increase by 3.2% year-over-year to $15.64 billion in 2023. In addition, its EPS is expected to increase marginally per annum for the next five years. It surpassed EPS estimates in all four trailing quarters.
Robust Profitability
K’s trailing-12-month EBITDA and net income margins of 16.39% and 10.01% are 47.1% and 145.5% higher than the industry averages of 11.14% and 4.08%.
In addition, its trailing-12-month ROCE, ROTC, and ROTA of 38.39%, 10.13%, and 7.84%, compared with the industry averages of 10.40%, 6.17%, and 3.56%, respectively.
POWR Ratings Reflect Promising Outlook
K’s overall rating of B equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. K has a B grade for Quality, consistent with its higher-than-industry profitability margins.
It has a C grade for Value. Its forward EV/Sales of 2.02x is 12.7% higher than the industry average of 1.79x. However, its forward P/E of 17.46x is 16.9% lower than the industry average of 21.01x.
In the 82-stock Food Makers industry, K is ranked #28. Click here for the additional POWR Ratings for K (Growth, Momentum, Stability, and Sentiment).
View all the top stocks in the Food Makers industry here.
Bottom Line
K’s solid dividend-paying record makes it an attractive option for income investors. Moreover, its positive growth outlook and robust profitability should help K generate stable returns. Therefore, this consumer staples giant might be an ideal addition to safeguard your portfolio against market turbulence.
How Does Kellogg Company (K) Stack up Against Its Peers?
While K has an overall POWR Rating of B, one might consider looking at its industry peers, Grupo Bimbo, S.A.B. de C.V. (GRBMF), US Foods Holding Corp. (USFD), and Sysco Corporation (SYY), which have an overall A (Strong Buy) rating.
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K shares were trading at $66.60 per share on Friday morning, down $1.03 (-1.52%). Year-to-date, K has declined -6.51%, versus a 8.89% rise in the benchmark S&P 500 index during the same period.
About the Author: Riddhima Chakraborty
Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.
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