Mondelez International
offers “best-in-class organic growth,” wrote RBC Capital Markets analysts led by Nik Modi as they reversed course on the maker of Oreo cookies.
RBC lifted their rating on Mondelez (ticker: MDLZ) to Outperform from Sector Perform and hiked their price target to $83 from $75 in a Monday report. The stock was trading flat at $71.61, and this year, it has gained 7.4%.
The upgrade comes after Mondelez stock has made some gains. RBC had downgraded shares on Jan. 3 to Sector Perform from Outperform, amid concerns on valuation and volume recovery in the packaged-food industry in general. From then through Friday’s close at $71.62, however, Mondelez stock has gained 8.1%. The new price target implies about 16% upside.
The RBC analysts now write that they believe the company “will deliver best-in-class top-line and margin performance and should trade at a multiple that reflects this.”
RBC notes that Mondelez stock trades hands at a multiple of 20 times two-year forward price/estimated earnings—cheaper than competing consumer packaged goods companies—which include
Procter & Gamble
(PG),
Colgate-Palmolive
(CL),
PepsiCo
(PEP),
Coca-Cola
(KO), and
Church & Dwight
(CHD), among others—which trade at an average multiple of 24 times.
RBC is upbeat on the outlook for the company’s “category growth, share gains, expanding its retail footprint, and securing more shelf space in existing stores with incremental growth from an active M&A strategy.”
The ingredient list of positives edges Mondelez over
Hershey
(HSY), RBC explained, pointing to a host of challenges the chocolate-bar giant is expected to face over the next year, which include rising sugar and cocoa costs and an increasingly competitive landscape. The analysts rate Hershey stock at Sector Perform with a $213 price target. Interestingly, Hershey stock has dropped about 16% to $191.31 between RBC’s downgrade and upgrade of Mondelez stock.
Wall Street remains more sweet on Mondelez. A FactSet survey shows that 88% of analysts who cover Mondelez rate the stock at Buy, above the 36% Buy-rating ratio for Hershey.
Write to Emily Dattilo at emily.dattilo@dowjones.com
Read the full article here
