General Mills products - Tiny Toast cereal, Nature Valley granola bars, Yoplait yogurt, Annie's pasta, Pillsbury mini pies
Credit Suisse has increased its target price for General Mills to $68 per share from $62.

NEW YORK — Credit Suisse has increased its target price for Minneapolis-based General Mills, Inc. to $68 per share from $62 and raised its estimates slightly above consensus.

Robert Moskow, Credit Suisse
Robert Moskow, research analyst with Credit Suisse

“Top-line growth remains muted, but it is showing some modest signs of a rebound now that the cereal category has stabilized and comparisons to last year’s merchandising losses are easing,” Robert Moskow, research analyst with Credit Suisse, wrote in a June 24 report.

Mr. Moskow said General Mills stands to benefit from another year of incremental savings from restructuring and zero-based budgeting, and also should reap the rewards of a stronger effort internally to improve returns on its trade promotion practices.

“We think the company enjoys greater-than-normal flexibility to reinvest in its business while dropping savings to the bottom line,” he said. “This dynamic should yield a ‘normal year’ of high single-digit e.p.s. (earnings-per-share) growth even though sales growth remains weak and the Green Giant divestiture poses an e.p.s. of headwind of perhaps 2%.”

Despite a number of headwinds and tailwinds to consider in the fourth quarter, Mr. Moskow said Credit Suisse believes the 60c implied by General Mills’ management’s guidance is “highly conservative.”

“If we are overly bullish, it might be because we underestimate the cost of higher advertising spending for cereal (there was a lot) and the failed attempt to revive U.S. yogurt with stronger merchandising,” he said.

Jeff Harmening, General Mills
Jeff Harmening was named president and c.o.o. of General Mills on June 23.

Mr. Moskow said Jeff Harmening, who was named president and chief operating officer on June 23, has had a “rough ride” in his first two years as head of U.S. Retail but remains an “excellent leader” who has demonstrated an ability to keep the organization focused during a difficult time of restructuring and cost controls.

“We view him as the safe choice to maintain the company’s consistent approach toward reinvestment and growth,” Mr. Moskow said. “That said, perhaps his biggest challenge ahead will be to figure out whether to take even more aggressive steps to reduce the company’s cost structure (as peers like Kraft Heinz keep raising the bar on profit margins) or consider more aggressive acquisitions/divestitures to reposition the portfolio to adapt to a slower growth environment.”