Shares of General Mills (GIS) jumped 0.2 % during today's morning session, bringing their 52 week performance to 16.5%. The stock seems to be fairly valued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's strong growth indicators and mixed market sentiment.
General Mills, Inc. manufactures and markets branded consumer foods worldwide. The large-cap Consumer Staples company is based in Minneapolis, United States and has 32,500 full time employees.
GIS's P/E Ratio Is Comparable to its Sector Average
Compared to the Consumer Staples sector's average of 24.36, General Mills has a trailing twelve month price to earnings (P/E) ratio of 17.7 and an expected P/E ratio of 18.3. P/E ratios are calculated by dividing the company's share price by either its trailing 12 month ($4.63) or forward earnings per share ($4.49).
Earnings is another term for the net profits left over after subtracting cost of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since General Mills's P/E ratio is near its sector average of 24.36, we can deduce that the market is fairly valuing the company's earnings.
General Mills Is Overvalued in Terms of Expected Growth
General Mills's PEG ratio is 2.74. This metric represents the company's earnings per share divided by its expected growth ratio, and is a useful complement to the price to earnings analysis, because it factors in growth to the valuation. A PEG ratio around or below 1 implies that the market in fairly valuing the company in terms of its growth estimates. But when the PEG ratio is higher, as in General Mills's case, it tells us the company is overvalued.
GIS Has an Average P/B Ratio
Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.
Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For General Mills, the P/B value is 4.72 while the average for the Consumer Staples sector is 4.29.
Investors Stand to Gain from GIS's Cash Flows
General Mills has strong cash flows. With a coefficient of variability of 13.7% and an average growth rate of -5.1%, the company is effectively turning its revenue into cash. We calculate General Mills's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations. The table below shows us that capital expenditures are evolving at a 7.3% rate, versus -3.4% for operating expenses:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cashflow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-05-31 | 3,316,100 | -568,700 | 2,747,400 | 12.03 |
| 2021-05-31 | 2,983,200 | -530,800 | 2,452,400 | -23.73 |
| 2020-05-31 | 3,676,200 | -460,800 | 3,215,400 | n/a |
General Mills's Margins Are Strong
If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing General Mills's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.
General Mills's Gross Margins
| Date Reported | Revenue ($ k) | Cost of Revenue ($ k) | Gross Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-05-31 | 18,992,800 | 12,590,600 | 33.71 | -5.23 |
| 2021-05-31 | 18,127,000 | 11,678,700 | 35.57 | 2.27 |
| 2020-05-31 | 17,626,600 | 11,496,700 | 34.78 | n/a |
General Mills's Operating Margins
| Date Reported | Total Revenue ($ k) | Operating Expenses ($ k) | Operating Margins (%) | YoY Growth (%) |
|---|---|---|---|---|
| 2022-05-31 | 18,992,800 | 3,147,000 | 17.14 | -7.75 |
| 2021-05-31 | 18,127,000 | 3,079,600 | 18.58 | 9.94 |
| 2020-05-31 | 17,626,600 | 3,151,600 | 16.9 | n/a |
General Mills's cost of revenue is growing at a rate of 3.1% in contrast to -0.0% for operating expenses. Sales revenues, on the other hand, have experienced a 2.5% growth rate. As a result, the average gross margins growth is -1.0 and the average operating margins growth rate is 0.5, with coefficients of variability of 2.7% and 5.2% respectively.
We See Mixed Market Signals Regarding GIS
General Mills has an average rating of hold and target prices ranging from $97.0 to $67.0. At its current price of $82.03, the company is trading -3.29% away from its target price of $84.82. 2.1% of the company's shares are linked to short positions, and 80.1% of the shares are owned by institutional investors.
| Date Reported | Holder | Percentage | Shares | Value |
|---|---|---|---|---|
| 2023-03-31 | Blackrock Inc. | 9% | 54,434,668 | $4,465,275,749 |
| 2023-03-31 | Vanguard Group, Inc. (The) | 9% | 52,279,069 | $4,288,451,966 |
| 2023-03-31 | Capital International Investors | 6% | 33,535,450 | $2,750,912,922 |
| 2023-03-31 | State Street Corporation | 6% | 32,860,122 | $2,695,515,767 |
| 2023-03-31 | Capital Research Global Investors | 4% | 22,424,705 | $1,839,498,523 |
| 2023-03-31 | Geode Capital Management, LLC | 2% | 11,336,837 | $929,960,725 |
| 2023-03-31 | Morgan Stanley | 1% | 8,124,441 | $666,447,885 |
| 2023-03-31 | Northern Trust Corporation | 1% | 7,777,532 | $637,990,940 |
| 2023-03-31 | Charles Schwab Investment Management, Inc. | 1% | 7,561,050 | $620,232,922 |
| 2023-03-31 | Capital World Investors | 1% | 7,179,561 | $588,939,380 |
