Is General Mills (NYSE:GIS) Really Over-priced?


General Mills (NYSE:GIS), one of the leading companies that deals with the packaged food sector of the market, is trading quite high these days. The primary reason for this increase is that the company’s yield is very high. Investors are facing lots of questions regarding the stocks. The common one among all of them is the question of whether the investors should buy the stock or not.

Our brief answer would be a yes. Let’s now look into the reasons as to why the stock has got potential.

The first reason is that the demand of canned goods will increase in the coming years. The world population is estimated to increase in a period of 20 years by 1 billion people of o; this increase will largely be in the middle class of the society, which would consequently result in modernization and industrialization in the developing regions of the world. This change will result in an increased demand in 2 sectors of the market, energy and food.

It is important to mention here that General Mills (NYSE:GIS) is experiencing very low sales these days; but that does not indicate to the future of the company.

Coming to the second reason, the management of the company is allocating the capital very wisely. The company is paying dividends to its investors, making acquisitions and starting shares’ buyback programs.  The company has bought back shares worth around $3 billion in the past three years. As far as the acquisitions are concerned, General Mills (NYSE:GIS) has made good decisions. The company recently bought Annie’s Homegrown, a food segment that is rapidly growing.

The company also gives generous dividends to its investors. It has increased the dividends by 35 percent in the last 2 years. Moreover, General Mills successfully reduced the outstanding shares by 7 percent. Due to the share buyback programs, the value of each share has increased. Market analysts are applauding this buyback strategy of the company whereby it focused more on the shareholder value than to make hasty acquisitions.

The company has a stable business, which indicates to long-term growth.  What’s more interesting is that the company is making reliable decisions in order to increase its value in the eyes of the investors. We cannot say as to whether the company will post annual revenue of 10 percent again, but a stable EPS, sound shares’ buyback program, and good set of acquisitions would definitely take the company ahead.

The stock fell by 6 percent since June 2014; but according to the market experts, it is still trading high. On the last trading day of December 2, 2014, the company started its stocks at a price of $52.53 and closed at a price of $52.63, after hitting the highest value of $52.76. The company has a total market capitalization of $31.86 billion with a P/E (price to earnings) ratio of 19.67. As far as the dividend yield is concerned, the figures stand at 3.12 percent right now.

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