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The analysts told investors in a note that the spin-off creates uncertainty, but the valuation is “seriously attractive.” Kellogg is spinning off its North American cereal business, which it intends to complete by the end of 2023.
“We are upgrading Kellogg to Market-Perform with a TP of $62 based on 1) cheap current valuation, 2) relatively modest stranded cost estimates, and 3) a fair SOTP value post spin off that should take place at the end of this year,” they wrote.
The “valuation for Kellogg is attractive,” stated the analysts, “trading at 11.6x NTM EV/EBITDA, a 5-year low and 15-year low relative to its U.S. Food peers.”
“Following the divestment announcement one year ago, Kellogg’s stock has underperformed the rest of its U.S. Food peers by -15% and its main competitor GIS by -26%. When accounting for our stranded cost estimates of ~4% of WK Kellogg Co. sales, valuation increases to 12.0x, still a historically cheap level,” they said.
The analysts added that looking at performance vs. peers, investors have “ignored the improved earnings outlook for Kellogg likely due to the corporate action.”
