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Kellogg’s Diagnosed Lactose Intolerant – Stock Ulcerates, Suffers Gastric Event! (K)

Posted on August 29, 2022

On the fourth of August, Kellogg Co. (NYSE:K) announced earnings and all was well at the breakfast table.

Earnings beat.

Sales Beat.

But ever since, the stock has done precious little – albeit in a tough market – and it now appears a top may be forming.

An All-American Top

Kellogg’s is splitting itself into three separate businesses, and getting out of the slow-growth cereal trade – opting instead to become a snack food enterprise, a move it’s been careening toward for a while now.

With Special K out and PopTarts and Pringles in, Kellogg’s hopes to capture a bigger share of the fast-growing, junk food sector – a decision we believe they’ll live to regret.

Why?

Because harder times are headed our way, and simply put, folks will choose staples over snacks when resources are scarce: that means Corn Flakes and All Bran before CHEEZ-IT.

Inflation is already starting to take a bite out of earnings, and we expect there’ll be significant push-back on the part of consumers when the company tries to pass price increases through to shoppers this fall.

At that point, Kellogg’s may find itself toothless and wishing it had stuck with its core business.

Fundamentals

Let’s look at some numbers…

  • P/E for the stock is 17.04 – reasonable relative to the rest of the market.
  • Dividend Yield is 3.20% – outright rich compared the S&P 500, but again, this is the fate of a mature company whose growth prospects are limited, and reinvestment is less an option that returning cash directly to investors.
  • P/B is too high at 6.13,
  • Debt/Equity is too high at 1.72, and…
  • Analyst recommendations are now, on average – HOLD.
  • Why?  Not sure, but it likely has something to do with the 2.30% annual growth rate those same analysts see, on average, over the next five years.  In other words, we’ve plateaued.  And in the investment world that means… it’s time to buy a net.
  • Oh, and insiders sold $120 million worth of stock over the last six months.

Here’s a chart for those same six months –

HaKadosh Baruch Hu operates the toaster, fellow diners.

May He grant all ye good Jews and Noahides a sweet – and nutritious – return.

With kind regards,

Hugh L. O’Haynew

 

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