'Let The General Ride Again': Goldman Upgrades General Mills

In a report published Monday, analysts at Goldman Sachs upgraded

from Sell to Neutral. The price target has been raised from $47 to $56. Not only are the company's fundamentals and "optionality builds" in its Foods segment not as bad as was expected, General Mills' portfolio is also less unbalanced than that of its peers. The U.S.-centric packaged foods industry is currently working to align its portfolio to the changing demand trends. This poses gross margin risks for businesses in this segment. However, according to the analysts, "GIS is further along than peers in shifting to meet the demands of Millennials – a generation we expect to account for 75% of industry growth through 2025. It is advantaged by a portfolio presence in advantaged categories (e.g., yogurt, wholesome snacks) and a brand equity advantage in numerous categories (e.g., cereal, yogurt, prepared dinners, frozen appetizers)." Although the analysts have raised their estimates for General Mills for 2016 and 2017, they expect the company to report its EBIT and constant currency sales below the company's initial guidance. At the same time, the good news is that General Mills has reported higher-than-consensus EPS for two straight quarters. The company's portfolio is still exposed to SKU rationalization risk.