General Mills was upgraded to buy from neutral at UBS, which said it’s optimistic about the outlook despite the stock’s rocky performance, and investor concerns are overblown. The Pillsbury and Cheerios maker’s stock has fallen 12% since mid-December, UBS said, vs. a 5% loss for peers, UBS said. “Investors are concerned that structural headwinds are beginning to form in Pet,” analyst Cody Ross wrote in a note, referring to the pet food business. “However, we think these fears are misplaced given: (1) the long runway for premiumization ahead driven by the humanization of pets trend; and (2) the [near term] visibility to margin recovery in the Pet segment. Meanwhile, we see a meaningful opportunity for GIS’ Int’l margin to rebound as it laps the ice cream recall.” UBS foresees strong consumer demand for upgraded dog food in coming years, driving market growth of 5%. This will be critical in helping General Mills achieve 2% long-term sales growth, the note added. Furthermore, UBS believes that demand for packaged, convenience foods to eat at home will persist as greater numbers of people continue working from home post-Covid. “We think there are several tailwinds to GIS’s portfolio (more at-home meal occasions, improved competitive landscape, and divesting underperforming assets), while we expect Pet to re-accelerate in the near term and sustain share gains through consumer trade up,” UBS added. Ross raised his GIS price target to $88 from $85, implying almost 15% upside from Thursday’s closing price. The stock is almost 1% higher premarket Friday. —CNBC’s Michael Bloom contributed to this report.
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