Analyst: Kellogg's Recent Pullback Is A Buying Opportunity

The grocery store landscape is rapidly changing and companies like Kellogg Company K that are exposed to the "middle aisles" are falling out of favor among some analysts.

The Analyst

Argus Research Company's David Coleman upgraded Kellogg's stock rating from Hold to Buy with a $73 price target.

The Thesis

Kellogg's stock has underperformed in the last three months and one-year period, creating an attractive opportunity for investors, Coleman said in a research report. (See Coleman's track record here.) 

While Kellogg's business remains exposed to the challenging grocery food environment, the financials are set to improve based on diminishing currency headwinds and new product launches over the coming quarters, Coleman said. 

As such, the case for owning Kellogg's stock is based on fundamentals, the analyst said. The stock is now trading at 15.9x the analyst's 2017 EPS estimate which is near the low end of its five-year historical range of 13.9x-24.2x and below the group average of 24.0. The price/sales ratio of 1.8 is near the midpoint of Kellogg's five-year historical range of 1.4-2.3, but below the peer average of 2.9.

"Based on these favorable valuation metrics, we are raising our rating to Buy and setting a target price of $73," the analyst said. "We believe that the recent pullback in the shares offers investors an attractive entry point."

Price Action

Shares of Kellogg were trading higher by around 0.5 percent Wednesday morning.

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Photo courtesy of Kellogg.