General Mills Margin of Safety Concerns

about 2 months ago

"When do we hit value with General Mills stock? It's going down. The fundamentals are stable. And we just had an investor day conference discussing how they're going to go back to growth and all their brands, the Cheerios, and how the consumer wants easy access to quality food they trust. However, we must also compare that to the market cap. That's a 9% free cash flow yield. And if I look at the dividend and if I look at the buybacks, the 3% difference between six and nine dividend plus buybacks is reinvested for that growth for marketing. Thus, the real free cash flow yield of General Mills is 6% and that's not enough for private equity. If you want a margin of safety, they want 10% on these risky turnaround bets."

The analyst criticizes General Mills, noting that its 6% free cash flow yield falls short of the 10% margin of safety desired for risky turnaround bets. Despite stable fundamentals and potential catalysts, stagnant consumer demand and competitive pressures raise concerns about its valuation in a turnaround scenario.

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