General Mills, Inc. (GIS): Why This Cereal Stock Makes a Great Long-Term Holding

While the S&P is trading near a multiyear high, closing at 1,569.19 as of March 28, it is a good time for smart investors to take some profits and review stocks with strong cash flow and low beta. General Mills, Inc. (NYSE:GIS), as a leading global manufacturer and marketer of branded consumer foods with a market cap of $31.55 billion, is a great candidate to consider when it comes to consistent, solid cash flow and exceptionally low volatility.

General Mills, Inc. (NYSE:GIS) continues to be bullish in the near-term, and remains an attractive long-term holding for its strong fundamentals. Most importantly, General Mills’ cash flow is cheap (P/CF of 14.42) and continues increasing steadily.

Management Update

As reported in its Q3 2013 earnings report, General Mills has robust levels of new product innovation in markets around the world, including new Honey Nut Cheerios, Totino’s Rolls, Fruit Roll-Ups, Fiber One Chewy Bar, Nature Valley product series, and Yoplait product series, etc. The company is also quickly expanding C-store distribution of recently acquired Food Should Taste Good natural snacks.

With recent legislation of the U.S. K-12 school nutrition program recommending more whole grain at breakfast, Big G cereals, which contain more whole grain than any other single ingredient, have a great opportunity to expand the cereal distribution in the education channel.

The company has delivered solid year-to-date performance, with a mid-single digit increase in total company net sales and double-digit growth in adjusted diluted EPS.

The company has raised its EPS guidance to $2.68 (from $2.66) for fiscal 2013. As the company already outlined,it will return to the long-term earnings model in 2014, including high single-digit growth in EPS and increased cash returns to shareholders.

Analysts’ Calls and Estimates

On March 27, 2013, Argus upgraded General Mills from hold to buy. Analysts currently have a mean target price of $46.44 and a median target price of $45.50 for General Mills, Inc. (NYSE:GIS).

Analysts, on average, are estimating an EPS of $0.54 with revenue of $4.32 billion for the current quarter ending in May, 2013. For 2013, analysts are projecting an EPS of $2.69 with revenue of $17.64 billion, which is 5.90% higher than 2012.

Increasing Cash Flow

General Mills’ free cash flow continues to increase and price to cash flow ratio continues to decline since mid-2011.

Source: YCharts.com

Fundamentally, there are a few positive factors for General Mills. General Mills, Inc. (NYSE:GIS) has a higher revenue growth (three-year average) of 4.3 (vs. the industry average of -11.2), as well as higher operating margin of 16.0% and net margin of 10.4% (vs. the industry averages of 8.4% and 5.0%).