This Is Why The S&P Is Going To Hit An All-Time High, Soon
If you’ve been wondering what could keep the market moving higher let me tell you, it’s the results from companies like General Mills (NYSE: GIS). While most S&P 500 have suffered under the COVID-19 pandemic and restrictions others, notably consumer staples companies, have been flourishing. Because there is really no reasonable end to the pandemic in view we can expect those trends to continue for at least another year, if not longer.
So, what was so great about the General Mills report? Absolutely everything, there is not one thing to not like about the report other than the uncertainty the pandemic has introduced to the market. When it comes to General Mills, the only uncertainty I have is how well the company will perform this fiscal year … and when exactly to expect the next dividend increase.
A Great Dividend Supported By Better Results
Before I dig into the report, let me talk about the dividend for a moment. General Mills yields about 3.2%, $1.96 per share, which I find attractive. It’s not quite what I would call “high yield” but it is pretty close. The 3.2% is certainly more than the average S&P 500 company is paying and comes with a much better outlook for growth.
General Mills is not a Dividend Aristocrat and hasn’t increased its yield for several years but the history of distributions is impressive. The company has only ever increased its dividend and has done so on a semi-regular basis. Based on today’s report, the balance sheet, the payout ratio, and the outlook for fiscal 2021 I would be very surprised if another increase wasn’t forthcoming over the next 12 months.
The only real negative in the report is the organic growth figure. Organic growth came in at a mere 16% versus the 16.9% predicted by the analysts. That said, organic sales were offset by an unexpected margin increase driven by pricing and product mix. Other highlights from the report include top-line revenue growth of 20.7% from the fiscal 4th quarter of 2019. Revenue growth in the quarter beat consensus and caps off a fantastic year for General Mills.
On the top line, full-year revenue rose 5.0%, better than forecast, and drove a substantial improvement to the company’s financial position. The GAAP EPS grew by 9% in the 4th quarter and 23% for the year and cash from operations increased 31% on an annual basis with free-cash-flow up 42%. The best part is that General Mills, a company working hard at deleveraging its balance sheet, beat its own goals for paying down debt in 2020 putting it in even better position than expected going into the new year.
The Analysts Are Behind The Curve On This Stock
The analysts are still only neutral on General Mills despite its results, its outlook, and the expected time horizon for the COVID-19 pandemic. General Mills itself is not issuing guidance for the 2021 fiscal year but even they expect heightened demand for stay-at-home food (85% of revenue in the pre-pandemic world, now nearly 100%) to linger on into the future.
Even assuming that fiscal 2021 revenue is only flat to 2020 the consensus estimate is short by 3.0%. Factor in the fact that General Mills fiscal 2020 only included one full quarter of pandemically heightened demand and I think we can expect the company to produce at least a little revenue growth in 2021. In either case, the situation is set for the analysts to begin upping their estimates, price targets, and ratings and when they do that will drive shares of GIS even higher.
The Technical Outlook: This Rally Has Just Begun
General Mills stock has posted an impressive comeback from its pandemic lows. Now, with today’s news, the stock is moving up from solid support (in the preopening action) at the short-term moving average triggering another buy signal. The indicators are set to confirm said buy signal with bullish crossovers in stochastic (already fired) and MACD which should fire today. The only caveat is potential resistance at the $64 level but I don’t think that is going to hold this stock back any longer. Once broken, the $64 level should open the door to extended gains over the next 6 to 12 months.
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There are more than 500 national retailers traded on the NYSE and the NASDAQ. Given the sheer number of big box stores, warehouse clubs, restaurant chains and other retail stores listed on public markets, it can be hard to identify which retailers are going to outperform the market.
Fortunately, some of Wall Street's top analysts have already done most of the work for us.
Every year, analyst issue approximately 4,200 distinct recommendations for retail companies. Analysts may not always get their "buy" ratings right, but it's worth taking a hard look when several analysts from different brokerages and research firm are giving "strong buy" and "buy" ratings to the same retailer.
This slide show lists the 8 retail companies that have the highest average analyst recommendations from Wall Street's equities research analysts over the last 12 months.
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