RBC Upgrades General Mills To Outperform On Reinvestment Value

In a report published Tuesday, RBC Capital analyst David Palmer upgraded the rating on General Mills, Inc. GIS, while raising the price target from $58 to $65.

The analyst believes that while the company's earnings are sustainable and have higher perceived quality, General Mills has the highest probability among its U.S. food peers to offer value of reinvestment.

The analyst also believes that there is increased visibility into the company's earnings, driven by core revenue growth, with higher cost enablers.

General Mills has various reinvestment enablers, including "1) the beginning of overhead cost rationalization following zero based budgeting analysis, 2) organizational streamlining, 3) cost of goods productivity, 3) increasing promotion efficiency, and 4) lower input cost inflation," according to the RBC Capital report.

The analyst believes that the company's "cost picture" is meaningfully better than it has been in recent years, and that the COGS inflation expectation for FY16 could prove to be conservative.

"For starters, its $5 billion of US retail sales getting well-conceived investments in the food. This is by far the most in company history," Palmer added.