General Mills, Inc. (GIS), Groupe Danone SA (DANOY) & Kellogg Company (K): Should We Invest in Those Food Giants Now?

In the past twelve months, food businesses like General Mills, Inc. (NYSE:GIS), Groupe Danone SA (PINK:DANOY) and Kellogg Company (NYSE:K) experienced good growth. Of this group, Kellogg Company (NYSE:K) is the best performing stock with more than a 31% gain. General Mills, Inc. (NYSE:GIS) ranked second with a more than 26% rise, while Danone’s share price has increased nearly 24.4% since the middle of 2012. All of those three stocks outperformed the S&P 500’s return of nearly 21.5% during the same period. Should investors invest in those three food giants now? Let’s take a closer look and find out.

Growing business performance with good cash return to shareholders

In the fourth quarter of 2013, General Mills managed to grow both its top line and bottom line. Revenue increased by 8% to more than $4.4 billion, while net income rose by 13% to $366 million. Diluted EPS came in at $0.55 per share, 12% higher than the EPS last year. For the full year, General Mills, Inc. (NYSE:GIS) generated nearly $1.86 billion in net earnings, an 18% growth, while the EPS rose to $2.79 per share, a 19% growth compared to 2012 EPS. In 2013, General Mills reported that it had returned nearly $1.9 billion in cash to its shareholders in both form of dividends and share repurchase. General Mills, Inc. (NYSE:GIS) spent around $1 billion to repurchase around 24 million shares. Moreover, the dividend has increased by 8% to nearly $870 million.

The 2013 operating margin stayed at around 18%. In 2014, General Mills will drive its operating margin higher by executing holistic margin management plans across its supply chain, having better SG&A efficiencies, especially the international segment. For the full year 2014, General Mills, Inc. (NYSE:GIS) expects its adjusted diluted EPS to grow at a high single-digit rate to reach around $2.87 to $2.90 per share. The share count was estimated to decline by around 2%. General Mills is trading at around $48.10 per share, with a market cap of around $31 billion. The market does not value General Mills cheaply, at more than 11 times its trailing EBITDA. Investors might like General Mills, Inc. (NYSE:GIS) its decent dividend yield of 3.1%.

Are Danone and Kellogg cheaper, and more compelling?

General Mills, Inc. (NYSE:GIS) has a bit lower valuation than Groupe Danone SA (PINK:DANOY). At $14.70 per share, Danone is worth more than $43.6 billion on the market. The market values Danone a bit more expensively at 11.5 times its trailing EBITDA. Groupe Danone SA (PINK:DANOY), a French consumer goods company, is one of the biggest global players in dairy sector. Most of the first quarter 2013 revenue, €2.95 billion, or 55.2% of the revenue, was generated from the Fresh Dairy Products. The Baby Nutrition segment was the fastest growing segment, with 17.1% year-over-year growth. Danone has been expanding its footprint in the organic baby food business, as shown by its recent move to acquire 92% stake in Happy Family. According to Wall Street Journal, Happy Family has experienced extremely rapid growth, from $13.3 million in 2010 to $62.3 million in 2012. Its products are available in more than 20,000 stores in the U.S., with the presence in Whole Foods Market, Inc. (NASDAQ:WFM) and Target Corporation (NYSE:TGT). Groupe Danone SA (PINK:DANOY) offers investors a bit lower yield than General Mills, at nearly 2.6%.

Kellogg Company (NYSE:K) is the most expensively valued food company among the three. At $63.50 per share, Kellogg is worth more than $23.30 billion on the market. It has the highest EBITDA multiple at 14.3. The company’s strategy is to be the global player in both cereal and snacks markets. Moreover, it would also like to become the regional frozen foods leader, building its footprint in emerging markets. In the snack business, with several brands, including Pringles and Cheez-It, has become the number two global savory snack company. For the full year 2013, Kellogg Company (NYSE:K) expected to deliver around 7% growth in net sales, including Pringles. The EPS growth was estimated to stay in the range of 5%-7%. Excluding the integration costs and mark-to-market accounting impact, its adjusted EPS might come in at $3.82 – $3.91 per share. Interestingly, Kellogg has recently announced a $1 billion share repurchase plan, expiring in April 2014. A $1 billion could create a buyback yield of nearly 4.3% at its current trading price. Like Danone and General Mills, Inc. (NYSE:GIS), Kellogg Company (NYSE:K) also pays shareholders a good dividend yield at 2.8%.

My Foolish take

Income investors might consider all three businesses to hold in a long run for their decent dividend yield. However, with double digit EV multiple, General Mills, Inc. (NYSE:GIS), Groupe Danone SA (PINK:DANOY) and Kellogg Company (NYSE:K) do not seem to be cheap. I would prefer lower prices to initiate significant positions in each of those three food businesses.

The article Should We Invest in Those Food Giants Now? originally appeared on Fool.com and is written by Anh Hoang.

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