Bernstein Still Convicted In Mondelez, But Why?

Bernstein issued a note on Mondelez International Inc. MDLZ after the company reported 4Q15 earnings and gave a mixed outlook with positive indications of margin expansion. The firms rates Mondelez at Outperform with a $52 price target.

Analyst Alexia Howard wrote, "While it's encouraging that Mondelez has established a new margin target of 17-18 percent by 2018 ... we see additional room for growth. We believe that Mondelez could reach margins of ~20 percent by 2020...Mondelez has multiple opportunities for cost-reduction."

Analysts at Bernstein gave two keys that can drive Mondelez's margins higher and bring further value to investors.

1. Cost-cutting

Bernstein noted that Mondelez has the opportunity to reduce headcounts where redundancies exist, particularly in the Finance and HR departments, through the creation of shared services that can help drive operational efficiency. Furthermore, Mondelez may be able to limit ineffective trade promotion spending, which should further increase margins.

2. Equipment upgrades

While the capitalized expense of upgrading old and inefficient manufacturing equipment may initially decrease margins, Bernstein believes that in the long term, these new machines will increase operational efficiency, reduce waste and have the potential to significantly raise margins.

Mondelez has plans to expand its global footprint in locations such as India and Bahrain, which may help the company increase market share and drive market power through economies of scale.

Shares of Mondelez recently traded at $37.20, down 2.17 percent.