Market Overview

General Mills Hit With Downgrade After Blue Buffalo Deal

Share:
General Mills Hit With Downgrade After Blue Buffalo Deal
Related BUFF
Benzinga's Top Upgrades, Downgrades For February 27, 2018
Earnings Scheduled For February 27, 2018
Related GIS
Transportation Costs Push PepsiCo Profits In Q3
60 Biggest Movers From Yesterday
General Mills - I Am Not Biting Despite Attractive Valuation (Seeking Alpha)

General Mills, Inc. (NYSE: GIS) announced Friday that it was expanding into pet food with the $8-billion acquisition of Blue Buffalo Pet Products Inc (NASDAQ: BUFF).

Investors reacted to the news with a 3.6-percent sell-off and analysts were similarly unenthused.

The Rating

Societe Generale analyst Warren Ackerman downgraded General Mills from Hold to Sell and lowered the price target from $58 to $48.

The Thesis

Based on its recent acquisitions of both Annie’s organic brand and Blue Buffalo, General Mills is striving for relevance by both reformulating its portfolio and expanding to higher-growth categories, Ackerman said in a Monday note.

The latter strategy may prove costly.

“There is no doubt that Blue Buffalo has been a great story and we can see how Mills could add distribution muscle in the FDM [food, drug and mass] channel, but we struggle to see a decent payback,” he said. 

By Societe Generale's estimates, Blue Buffalo will add just 7 to 8 percent to General Mills group sales, with synergies of just 4 percent.

“It is a higher-growth and higher-margin business versus Mills, but will be EPS dilutive given [that] the company is raising $1 billion in equity to fund the deal,” Ackerman said. “The issue, in our view, is that it leaves little room for further M&A, involves execution risk and is very ROIC-dilutive.”

Price Action

General Mills shares were down 2.4 percent at $51.76 at the time of publication Monday.

Related Links:

Mmm, Mmm Mergers: M&A In The Food Sector

Tyson Foods CEO Talks Tax Reform, M&A Strategy

Latest Ratings for BUFF

DateFirmActionFromTo
Feb 2018Wells FargoMaintainsMarket PerformMarket Perform
Feb 2018Wells FargoDowngradesOutperformMarket Perform
Feb 2018Imperial CapitalDowngradesOutperformIn-Line

View More Analyst Ratings for BUFF
View the Latest Analyst Ratings

Posted-In: Arthur Reeves Societe Generale Sriram Gurijala Warren AckermanAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

 

Related Articles (GIS + BUFF)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
QRVOKeyBancDowngrades0.0
SWKSKeyBancDowngrades0.0
CMAB. Riley FBRDowngrades84.0
COFBairdUpgrades101.0
CORJefferiesDowngrades102.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

This Day In Market History: The First Emerging Market Equity Fund Launches

On This Week's Agenda: Fed, More Earnings, Bevy Of Economic Reports