After General Mills Earnings Rise 17% – Is It Still A Buy?
Since July I’ve written two separate articles showing why you should consider buying General Mills to Depression Proof Your Portfolio…
Today, I want to give you an update on them and answer the question – After General Mills Earnings Rise 17% – Is It Still A Buy?
You can read the past articles in full by using the links above…
But if you don’t want to; here’s a quick recap of what I said back in the Summer about it…
From Article #1 Linked Above
GIS’ 3.1% Dividend
Over the last decade GIS’ paid out a total of $16.46 per share in dividends.
At today’s share count of 613 million shares that’s equal to $10.1 billion paid out to shareholders in the last decade.
These dividend payments will help you in normal times earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
Both help you earn higher returns over time and will especially help in any kind of prolonged economic issues like we’re dealing with today.
GIS Earns High Profits
Over the last decade it earned an average operating income margin of 16.7% per year.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 10.7% per year on average.
GIS surpasses my thresholds on both important metrics and that makes it an incredibly safe investment.
These profits also allow it to continually reinvest in operations. And to pay you a large dividend as well.
Its large profits and cash flow and growing dividend payments over time make GIS a safe income play in whatever is to come in the next few months or years.
But these profits also allow another layer of safety in the amount of debt the company has which is reason #3.
GIS’ Low Debt Levels
With GIS being a multibillion company, you’d expect it to have debt.
And it does… But its debt levels are extremely low compared to its profits and the equity in the company. This makes GIS an even safer investment.
This gets us to the next reason to consider buying its stock.
The Coronavirus Won’t Harm GIS
People may stop paying their mortgages.
They may stop paying their credit cards.
They may stop paying their vehicle loans.
And they may stop paying their student loans.
Because of the mass unemployment caused economic issues we’re now dealing with people may stop paying these things if they need to.
But they won’t stop feeding their kids.
This was illustrated when GIS released its most recent quarterly report on July 1st, 2020.
Its sales rose 5% in the year-to-year quarter to $17.6 billion.
Its adjusted operating profit rose 7% in the year-to-year quarter.
And its earnings per share rose 12% in the year-to-year quarter.
Because people are eating at home more and have less disposable income. And General Mills is one of the largest producers of food in the US so its benefits a lot from this.
While many other companies’ revenues, profits, and cash flows are getting crushed by the coronavirus… General Mills numbers rose.
This shows the power of the company and its ability to survive and thrive during this pandemic… No matter how long it lasts.
This gives enormous stability to the company in these highly uncertain times. And it also means you should expect GIS to continue earning enormous profits and cash flows.
And this means you should expect the large dividend payments to continue as well.
But what about its valuation? Is it cheap?
GIS Is Cheap
This is reason#5…
With the markets at or near all-time highs you’d expect a fantastic stock like GIS to be selling at an enormous valuation.
But it’s not.
As of this writing its P/E is 17.9.
Its P/CF is 10.6.
And its forward P/E is 18.4.
On all three metrics I look to buy investments below 20 to consider them undervalued.
And GIS’ current valuations fall well below this number putting it into the cheap valuation category.
This means GIS stock offers you a margin of safety in investing terminology.
A margin of safety means you’re buying a safe investment… And this makes the investment even less risky.
If you’re looking for a solid, safe, stable, dividend paying, cheap, and enormously profitable investment to Depression Proof Your Portfolio – consider investing in General Mills.
From Article #2 Linked Above
This thesis to buy General Mills continued to play out on September 23rd when it released its most up to date quarterly earnings.
- Revenue rose 9% in the year-to-year quarter to $4.4 billion.
- Operating profit rose 29% in the year-to-year period to $854 million.
- Earnings per share rose 21% in the year-to-year quarter to $1.03 per share.
And these large improvements led General Mills to increase its dividend 4% in the quarter to $0.51 per share.
This is the power of great stocks that have competitive advantages.
They survive and thrive even during crisis.
And this allows them to continue growing their dividends so you can earn more retirement income.
For this reason and the ones in the previous article, I recommend you buy General Mills to Depression Proof Your Portfolio.
This thesis to consider buying General Mills to Depression Proof Your Portfolio continued to play out after it released its most up to date earnings on December 17th, 2020.
- Sales rose 7% in the year-to-year quarterly period to $4.7 billion.
- Operating profits rose 13% in the year-to-year quarterly period to $917 million.
- And earnings per share rose 17% in the year-to-year quarterly period to $1.11 per share.
These are all fantastic… So why am I saying sort of above?
According to the company this happened because…
“We executed very well again in the second quarter, driving strong performance on the top and bottom lines,” said General Mills Chairman and Chief Executive Officer Jeff Harmening. “In this dynamic environment, I’m proud of the way we’re taking care of our people and serving our consumers with brands they love and trust. We strongly believe that the work we’re doing today to strengthen our brands and capabilities and deepen our connection with consumers will translate to profitable growth and shareholder value creation for the long term.”
But the market doesn’t seem to care… Because since I first wrote you about buying GIS back in July its shares are down a bit.
Which is good news for you because if profits rise while share prices fall that means its even cheaper for you to buy now.
It P/E is now 15.2.
Its P/CF is 10.1.
And its forward P/E is 15.9.
Meaning it offers you an even larger margin of safety and potential upside now then it did back in July.
Plus, its still paying you a solid 3.4% dividend which again is even better than back in July.
For these reasons – and the ones in the previous articles above – I continue to recommend you buy GIS stock to help Depression Proof Your Portfolio.
Because no matter if this pandemic continues for years – or the vaccines fix it tomorrow – GIS will continue being a great investment for you.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.