Morgan Stanley Raises General Mills' Price Target On Margin Improvements

Although there appears to be a long road ahead for General Mills, Inc. GIS to achieve margins of 20 percent, Morgan Stanley’s Matthew Grainger pointed out that there is greater visibility into the path to the company’s margin targets.

Grainger maintains a Neutral rating on the company, while raising the price target from $63 to $66.

Path To Margin Improvement

“We continue to view Mills’ recently-revised 20 percent EBIT margin target as an aggressive objective and dramatic change of course for a company that has previously taken a “slow and steady” approach to its growth algorithm,” the analyst mentioned.

Related Link: Citi Speculates On General Mills' Ability To Reach 20% Margin

General Mills highlighted four factors that would drive incremental efficiency beyond the company’s cost savings programs, including HMM that surpassed inflation in F17, trade spend efficiency, simplification and SKU rationalization and additional supply chain and ZBB savings.

“While the interplay between these various factors will likely be very dynamic and makes it challenging to create a straightforward ‘bridge’ from 16.8 percent to 20 percent margins, we nevertheless came away with a higher level of optimism on their achievability than we had going in,” Grainger said.

General Mills also provided details regarding its recently announced portfolio segmentation strategy, mentioning that its F2017 plans were focused on accelerating growth in its “growth” brands, while improving profitability for its “Foundation” brands.

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