Deep Dive into MDLZ -- Are These Shares Fairly Valued?

Shares of Mondelez International (MDLZ) jumped 0.1 % during today's afternoon session, bringing their 52 week performance to 10.0%. The stock seems to be overvalued 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 mixed growth prospects and positive market sentiment.

Mondelez International, Inc., through its subsidiaries, manufactures, markets, and sells snack food and beverage products in the Latin America, North America, Asia, the Middle East, Africa, and Europe. The large-cap Consumer Staples company is based in Chicago, United States and has 91,000 full time employees.

MDLZ's P/E Ratio Is Comparable to its Sector Average

Compared to the Consumer Staples sector's average of 24.36, Mondelez International has a trailing twelve month price to earnings (P/E) ratio of 21.3 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 ($3.01) or forward earnings per share ($3.51).

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 Mondelez International'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.

Mondelez International Is Overvalued in Terms of Expected Growth

Mondelez International's PEG ratio is 2.34. 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 Mondelez International's case, it tells us the company is overvalued.

MDLZ 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 Mondelez International, the P/B value is 3.05 while the average for the Consumer Staples sector is 4.29.

MDLZ's Weak Cash Flow Generation Is Troubling

The table below shows that Mondelez International is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Mondelez International's case, free cash flow is growing at an average rate of 0.0% with a coefficient of variability of 9392463419.1%. We can also see that cash flows from operations are evolving at a 0.0% rate, versus 0.0%:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2023-02-03 3,908,000 -906,000 4,814,000 -5.72
2022-02-04 4,141,000 -965,000 5,106,000 5.78
2021-02-05 3,964,000 -863,000 4,827,000 0.4
2020-02-07 3,965,000 -843,000 4,808,000 3.51
2019-02-08 3,948,000 -697,000 4,645,000 31.29
2018-02-09 2,633,000 -905,000 3,538,000

Mondelez International'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 Mondelez International'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.

Mondelez International's Gross Margins

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2023-02-03 31,496,000 -20,184,000 36 -7.69
2022-02-04 28,720,000 -17,466,000 39 0.0
2021-02-05 26,581,000 -16,135,000 39 -2.5
2020-02-07 25,868,000 -15,531,000 40 0.0
2019-02-08 25,938,000 -15,586,000 40 2.56
2018-02-09 25,896,000 -15,862,000 39

Mondelez International's Operating Margins

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2023-02-03 31,496,000 -7,516,000 12 -29.41
2022-02-04 28,720,000 -6,397,000 17 6.25
2021-02-05 26,581,000 -6,292,000 16 0.0
2020-02-07 25,868,000 -6,310,000 16 23.08
2019-02-08 25,938,000 -7,040,000 13 0.0
2018-02-09 25,896,000 -6,572,000 13

Mondelez International's cost of revenue is growing at a rate of -0.0% in contrast to 3.2% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is -0.0 and the average operating margins growth rate is -1.3, with coefficients of variability of 3.8% and 14.3% respectively.

Mondelez International Benefits From Positive Market Signals

The market sentiment regarding Mondelez International is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $89.0 to $65.0. MDLZ is trading -20.05% away from its target price of $80.24. 0.9% of the company's shares are tied to short positions, and 81.7% of the shares are held by institutional investors.

Date Reported Holder Percentage Shares Value
2023-06-30 Vanguard Group Inc 9% 123,687,658 $7,934,563,449
2023-06-30 Blackrock Inc. 7% 100,338,497 $6,436,714,735
2023-06-30 State Street Corporation 4% 59,520,732 $3,818,255,048
2023-06-30 FMR, LLC 2% 31,135,680 $1,997,353,919
2023-06-30 JP Morgan Chase & Company 2% 30,828,280 $1,977,634,209
2023-06-30 Price (T.Rowe) Associates Inc 2% 30,805,933 $1,976,200,648
2023-06-30 Geode Capital Management, LLC 2% 25,791,257 $1,654,509,175
2023-06-30 Bank of America Corporation 2% 23,215,623 $1,489,282,250
2023-06-30 Morgan Stanley 2% 23,205,364 $1,488,624,136
2023-06-30 Lindsell Train Limited 1% 18,267,898 $1,171,885,684
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.