We've been asking ourselves recently if the market has placed a fair valuation on General Mills. Let's dive into some of the fundamental values of this large-cap Consumer Staples company to determine if there might be an opportunity here for value-minded investors.
A Lower P/E Ratio Than Its Sector Average but Trades Above Its Graham Number:
General Mills, Inc. manufactures and markets branded consumer foods worldwide. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, General Mills has a trailing 12 month P/E ratio of 17.4 and a P/B ratio of 4.64.
General Mills's PEG ratio is 2.7, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Stable Revenues With Increasing Reinvestment in the Business:
| 2020-05-31 | 2021-05-31 | 2022-05-31 | |
|---|---|---|---|
| Revenue (MM) | $17,627 | $18,127 | $18,993 |
| Gross Margins | 34.8% | 35.6% | 33.7% |
| Operating Margins | 16.9% | 18.6% | 17.1% |
| Net Margins | 12.37% | 12.91% | 14.25% |
| Net Income (MM) | $2,181 | $2,340 | $2,707 |
| Net Interest Expense (MM) | -$466 | -$420 | -$380 |
| Depreciation & Amort. (MM) | -$595 | -$601 | -$570 |
| Earnings Per Share | $3.56 | $3.78 | $4.63 |
| EPS Growth | n/a | 6.18% | 22.49% |
| Diluted Shares (MM) | 613 | 619 | 587 |
| Free Cash Flow (MM) | $3,215 | $2,452 | $2,747 |
| Capital Expenditures (MM) | -$461 | -$531 | -$569 |
| Net Current Assets (MM) | -$16,791 | -$15,709 | -$15,212 |
| Current Ratio | 0.68 | 0.7 | 0.63 |
| Long Term Debt (MM) | $10,929 | $9,787 | $9,135 |
| Net Debt / EBITDA | 3.19 | 2.78 | 2.6 |
General Mills benefits from stable revenues and increasing reinvestment in the business, strong margins with a stable trend, and a steady stream of strong cash flows. The company's financial statements show wider gross margins than its peer group and positive EPS growth. Furthermore, General Mills has significant leverage.
