Credit Suisse Thinks Kellogg Will Follow General Mills' Lead Into A Strategic Shift

Credit Suisse’s Robert Moskow highlighted Kellogg Company K "rising probability" of rising margins and a changing M&A environment, while raising the company’s price target from $86.00 to $94.00.

Moskow believes Kellogg management will “follow the lead of its closest rival,” General Mills, Inc. GIS by accelerating its long-term margin goals. “The market's resounding approval of General Mills' strategic shift gives the Kellogg management team a ‘green light’ to put more emphasis on cost savings and less on growth,” stated the Credit Suisse analyst.

Roll-Out Of Zero-Based Budgeting

Moskow thinks Kellogg's adaptation of zero-based budgeting in the company’s international division has given the company “plenty of fuel to drop incremental savings to the bottom line.” Since Kellogg’s operating margins have fallen below competitors' figures extensively, Moskow believes there is significant room to strengthen them, if management takes the correct steps; initiating a zero-based budget is a step in the right direction.

Related Link: Credit Suisse's Contrarian Calls On AK Steel, Kellogg's And Others

Take-Out Bid

Over the past week, chatter indicated a possible takeout bid from The Coca-Cola Co KO, or, to a lesser extent, Kraft Heinz Foods Co HNZ. According to CNBC Wednesday, however, Kraft Heinz was not in talks with Kellogg.

Absence Of M&A Talks 'Won't Matter'

Moskow stated, however, that even if there is an absence of M&A news, it “won’t matter as long as the management team provides evidence that it is acting with a higher sense of urgency to create shareholder value.” In the analyst’s experience, management teams sometimes “leverage take-out speculation to further their case internally for more stringent measures to implement change.”

According to TipRanks, Moskow is among the better analysts covering Kellogg, holding a 60 percent success rate and a +3.9 percent average return per recommendation. The analyst is ranked 1,001 out of 4,073 analysts.

Moskow holds an Outperform rating on Kellogg.

At time of writing, Kellogg traded at $82.70, up 0.62 percent on the day.

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