Deutsche Bank Upgrades General Mills, Says Blue Buffalo Acquisition Underappreciated

General Mills, Inc. GIS and its new premium pet food brand Blue Buffalo are poised for growth, Deutsche Bank said Thursday in recommending investors buy stock in the maker of Cheerios, Betty Crocker and other well-known brands.

The Analyst

Deutsche Bank’s Rob Dickerson upgraded General Mills from Hold to Buy and boosted the target price from $43 to $54.

The Thesis

The core U.S. business for the food maker seems to have stabilized, and the growing upside opportunities for newly acquired pet food maker Blue Buffalo remain underappreciated by the market, Dickerson said in the upgrade note. 

General Mills — the company behind a number of iconic brands that also include Pillsbury, Nature Valley and Häagen-Dazs ice cream among many others — has had years of what Dickerson called “subpar” growth and a string of missed guidance expectations that soured investors on the Golden Valley, Minnesota-based company.

But stronger domestic retail trends and what looks like a strong growth opportunity for Blue Buffalo pet food sales at Walmart Inc WMT are underappreciated, the analyst said. The sales and customer survey reaction to the move to sell the premium pet food brand at Walmart have been positive, he said. Blue Buffalo was acquired by General Mills last year for $8 billion.

Deutsche Bank had been waiting to see how Blue Buffalo performed — and whether General Mills had gains in its base products, which it has, Dickerson said.

“Given we’ve watched base momentum stabilize and have better perspective on Blue Buffalo, we finally upgrade the shares to a Buy, driven by an overly discounted valuation vis-à-vis go-forward growth potential relative to peers." 

Price Action

General Mills shares were up 0.59 percent at $47.36 at the time of publication Thursday. 

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