Citi Reiterates Kellogg As Favorite Name In Packaged Food, Raises Target To $90

With Kellogg Company K currently trading at a 3 percent discount to large-cap packaged food peers, Citi’s David Driscoll believes that that is “significant room for upside over the next 12 months.”

Driscoll reiterated a Buy rating on the company, while raising the price target from $84 to $90.

EPS Potential

Reaffirming Kellogg as Citi’s favorite name in packaged food, Driscoll mentioned that the key to the company’s EPS potential is its huge cost savings initiatives, which are expected to lead to gross savings of $1.3 billion over the next three years.

The analyst pointed out that this savings was not reflected in the consensus expectations for Kellogg.

Related Link: Kellogg To Disclose Q1 Financial Numbers On May 5

‘Special’ K

“Kellogg’s US cereal portfolio reached a positive inflection, with 4Q15 retail sales growing +1.2 percent and market share in early 2016 up +50 bps,” Driscoll stated.

The analyst believes that this growth has been driven by the revival of Special K, with the company initiating aggressive renovation and rebranding efforts in 2015, which have driven robust sales growth for the brand.

Driscoll expects Kellogg to witness accelerating organic revenue growth in 2016, driven by a turnaround in the U.S. cereal segment.

“Ultimately, we believe solid organic revenue growth separates K from a number of its packaged food peers, who are driving EPS mostly through cost savings measures, but are not producing organic sales growth,” the analyst added.

The EPS estimate for 2018 has been raised from $4.35 to $4.40, to reflect significant cost savings driving up the operating margin estimate.