S&P 500 (SPY) Dives Below 3800 As Powell Wants To Put Pressure On Demand

Key Insights

  • S&P 500 finished the trading session below the 3800 level as Powell said that the Fed would work to moderate demand in order to fight inflation. 
  • The pullback was broad as traders rushed out of riskier assets. 
  • However, some consumer defensive stocks managed to gain ground in today’s trading session. 

The Fed Stays Focused On Inflation

S&P 500 declined by 1.7% in a volatile trading session after the Fed increased the interest rate by 75 bps.

Fed’s message was hawkish. The Fed raised the median federal funds rate projection to 4.6% in 2023. During the press conference, Fed Chair Jerome Powell highlighted the importance of pushing inflation back towards the 2% level.

Interestingly, S&P 500 made an attempt to settle above the 3900 level during Powell’s conference. However, stocks quickly lost momentum, and S&P 500 declined to 3790.

Powell said that higher inflation presented a bigger problem than the slowdown of the economy and potential layoffs. Powell said that the labor market was too tight and needed to be more balanced.

The pullback was broad as Fed’s efforts to cool demand will hurt all industries. Leasure and entertainment stocks were hurt the most. Caesars Entertainment, Las Vegas Sands, Carnival Corporation and Wynn Resorts were among the biggest losers.

Leading tech stocks have also found themselves under material pressure. Apple, Amazon, Tesla, and Meta were down by 2-3% in today’s trading session.

Some consumer defensive stocks, like General Mills, Kellogg, Campbell Soup, and Kraft Heinz enjoyed support today. Traders tried to find safe-haven assets in today’s market and focused on companies that produce basic products. It remains to be seen whether these stocks will continue to move higher in the upcoming trading sessions.

A Move Below 3780 Will Push S&P 500 Towards The Support At 3750

S&P 500

S&P 500 settled below the 3800 level and finished the day near 3790. After the market close, it is trying to settle below the support at 3780.

If this attempt is successful, S&P 500 will head towards the next support level, which is located at 3750. A move below this level will push S&P 500 towards the support at 3725. If S&P 500 gets below 3725, it will head towards the next support at 3700.

On the upside, the previous support at 3800 will serve as the first resistance for S&P 500. If S&P 500 manages to settle back above this level, it will head towards the resistance at 3825. A move above 3825 will push S&P 500 towards the resistance at 3850.

For a look at all of today’s economic events, check out our economic calendar.

Big Money Eats Up General Mills

And the consumer food company could soar more due to a focus on higher-margin U.S. business and a growing dividend. But another likely reason is Big Money lifting the stock.

General Mills Draws Big Money

So, what’s Big Money? Said simply, that’s when a stock goes up in price alongside chunky volumes. It’s indicative of institutions betting on the shares.

Smart money managers are always looking for the next hot stock. And General Mills has many fundamental qualities that are attractive.

This sets up well for the stock going forward. But how the shares have been trading points to more upside. As I’ll show you, the Big Money has been consistent in the shares.

You see, fund managers are always looking to bet on the next outlier stocks…the best in class. They spend countless hours sizing up companies, reading reports, speaking to analysts…you name it. When they find a company firing on all cylinders, they pounce in a big way.

That’s why I’ve learned how critical it is to gauge Big Money demand for shares. To show you what I mean, have a look at all the Big Money signals GIS has made the last year.

The last few weeks have seen Big Money activity too. Each green bar signals big trading volumes as the stock ramped in price:

Chart, histogram Description automatically generated

Source: www.mapsignals.com

In the last year, the stock attracted 17 Big Money buy signals. Generally speaking, recent green bars could mean more upside is ahead.

Now, let’s check out the technical action grabbing my attention:

Outperformance is important for leading stocks.

General Mills Fundamental Analysis

Next, it’s a good idea to check under the hood. Meaning, I want to make sure the fundamental story is strong too. As you can see, General Mills has been growing earnings well and sports a healthy profit margin. Take a look:

  • 3-year EPS growth rate (+15.3%)
  • Profit margin (+14.3%)

Source: FactSet

Marrying great fundamentals with technically superior stocks is a winning recipe over the long-term.

In fact, GIS has been a top-rated stock at my research firm, MAPsignals, for years. That means the stock has buy pressure, strong technicals, and growing fundamentals. We have a ranking process that showcases stocks like this on a weekly basis.

GIS has a lot of qualities that are attracting Big Money. It’s made the Top 20 report 34 times since 1990, with its first appearance on 06/04/1990…and gaining 2,189.7% since. The blue bars below show when General Mills was a top pick:

Chart, histogram Description automatically generated

Source: www.mapsignals.com

It’s been a top stock in the consumer staples sector according to the MAPsignals process. I wouldn’t be surprised if GIS makes additional appearances in the years to come. Let’s tie this all together.

General Mills Price Prediction

The General Mills rally could have further to go. Big Money buying in the shares is signaling to take notice. Shares could be positioned for further upside, plus it pays a nearly 2.9% current dividend. Given the historical gains in share price and strong fundamentals, this stock could be worth a spot in a diversified portfolio.

Disclosure: the author holds no positions in GIS at the time of publication.

Learn more about the MAPsignals process here.

Contact

https://mapsignals.com/contact/

Best Stocks to Buy in a Recession

Given all that’s happened recently, some people are talking about a recession. What’s that? It’s technically when there are two consecutive quarters (or more) of negative gross domestic product growth. Basically, it’s when the economic engine slows down.

Since 1980, we’ve had six recessions. We aren’t there yet. But if we do get there, don’t fret too much. In five of the last six recessions, the S&P 500 was up a year later.

Plus, it’s possible to succeed in almost all market conditions. I don’t mean there are ways where it’s impossible to lose. Rather, there are some stocks that seem to do quite well in recessions. These kinds of stocks are “durable” – they’re well-established names and tend to pay dividends. Let me show you what I mean.

Focusing on quality is paramount when markets are under pressure. Using my firm MAPsignals’ database, I’ve filtered for various quality metrics and a history of Big Money investment to identify five stocks that tend to do well in harder economic times: WMT, ABT, JNJ, GIS, & HSY.

Walmart Inc.

Up first is Walmart Inc. (WMT), the discount retail giant.

Even though great stocks can be choppy, like WMT over the past year, these companies are worthy of attention, especially when they have a tech-oriented growth strategy and huge hiring plans. Check out WMT:

  • 1-month performance (+8.5%)
  • Historical Big Money signals

Just to show you what our Big Money signal looks like, have a look at the top buy signals WMT has made over the years in the chart below. Blue bars are showing it was likely being bought by a Big Money player according to MAPsignals.

When you see a lot of them, I call it the stairway to heaven:

Source: www.MAPsignals.com

But, what about fundamentals? As you can see, WMT’s sales and earnings growth rates have held strong, and its earnings growth estimate is appealing:

  • 3-year sales growth rate (+3.7%)
  • 3-year EPS growth rate (+41.0%)
  • 2-year vs. 1-year EPS growth rate estimate (+7.6%)

What about WMT in a downturn? Over the last six recessions, its average return is an astounding (+34.4%).

Abbott Laboratories

Next up is Abbott Laboratories (ABT), the enormous health care company.

Check out these technicals for ABT:

  • 1-month performance (-3.4%)
  • Historical Big Money signals

Let’s look long-term. These are the top buy signals Abbott has made since 1990. The Big Money love is clear:

Source: www.MAPsignals.com

Now let’s dive deeper. As you can see, Abbott has had rock-solid sales and earnings growth:

  • 1-year sales growth rate (+24.5%)
  • 3-year EPS growth rate (+44.6%)

In the past six recessions, Abbott averaged a (+9.8%) gain. Even better, a year later, its average return was (+13.6%). This stock has handled downturns well in the past.

Johnson & Johnson

The third growth stock idea is Johnson & Johnson (JNJ), another enormous health care company.

Strong stocks usually have Big Money buying the shares. J&J has that. While JNJ has been choppy, it hasn’t fluctuated a lot over the past year. And it’s nice to see the stock has risen recently:

  • 1-month performance (+4.4%)
  • Historical Big Money signals

Below are the Big Money signals J&J has made since 1990. That’s the JUICE!

Source: www.MAPsignals.com

Now let’s look under the hood. J&J’s sales and earnings growth is impressive. Its profitability is strong too and so is its current 2.4% dividend, which help in a recession:

  • 1-year sales growth rate (+13.5%)
  • 3-year EPS growth rate (+13.3%)
  • Profit margin (+22.3%)

In the last six recessions, J&J stock rose fives times. Its average return over those recessions is (+12.3%), so it’s a downturn winner for sure.

General Mills, Inc.

Number four on the list is General Mills, Inc. (GIS), which is a huge food and beverage company with several well-known brand names.

Here are the technicals important to me:

  • 1-month performance (-6.2%)
  • Historical Big Money signals

Below are the Big Money signals for GIS since 1990. While it’s waned a bit recently, the Big Money has liked General Mills for a long time:

Source: www.MAPsignals.com

Let’s examine a bit more. General Mills has been growing sales well, is poised to grow earnings, and owns a nice profit margin:

  • 3-year sales growth rate (+4.8%)
  • 2-year vs. 1-year EPS growth estimate (+4.3%)
  • Profit margin (+12.9%)

Regardless of the economy, people need food. That has certainly helped GIS in the past six recessions, when it gained in five of them. Its average return over that span is (+15.3%), and it grew more one year and two years later (+14.5% and +28.7%, respectively).

The Hershey Company

Our last recession stock is an easy one to understand, it’s The Hershey Company (HSY), which makes candy and snacks seemingly everybody loves.

Check out these technicals:

  • 1-month performance (+1.5%)
  • Historical Big Money signals

Hershey has made the MAPsignals Top 20 report many times since 1990:

Source: www.MAPsignals.com

Now let’s look under the hood. Hershey has been growing sales and earnings, and its profit margin is strong:

  • 1-year sales growth rate (+10.1%)
  • 3-year EPS growth rate (+8.7%)
  • Profit margin (+16.5%)

Does candy melt in a recession? No. In the last six recessions, Hershey has gained four times, with an overall average return of (+8.7%).

The Bottom Line

WMT, ABT, JNJ, GIS, & HSY represent top stocks to buy in a recession. Strong fundamentals and historical Big Money buy signals make these stocks worthy of extra attention in tough economic times.

To learn more about MAPsignals’ Big Money process please visit: www.mapsignals.com

Disclosure: the author holds long positions in WMT in personal accounts.

Contact

https://mapsignals.com/contact/

 

2 Stocks From This Defensive Sector Buck The Trend During Market Selloff

After Federal Reserve meeting minutes pointed to a faster-than-expected rise in U.S. interest rates, the 4 major U.S. indices – S&P 500 (SPX), Nasdaq Composite (IXIC), Dow Jones (DJI) and Russell 2000 (RUT) fell significantly. The volatility similar to the Black Friday’s selloff last year is back.

Despite the market selloff, there are still a few dozen stocks showed up in my screener, which is under beta testing. After further filtering based on the price structure and the relative strength, one defensive sector stands out because there are still quite a number of stocks such as Coca-Cola (KO), General Mills (GIS), Tyson Food (TSN), Pepsico (PEP), etc… in a strong up trend and outperform the S&P 500.

Visit TradePrecise.com to get additional market insights and test results from my stock screener in email for free.

The following 2 stocks are selected based on the price volume analysis and could still provide decent reward to risk ratio with a relatively low risk trade entry. Consumer staples is one of the well-known defensive sectors and these 2 stocks are under the Food Products industry group.

Hershey Foods (HSY) Price Volume Analysis

From the weekly chart as shown below, HSY has formed an accumulation range lasted 18 months from September 2019 until March 2021. After breakout from the accumulation structure, HSY had a steady rally and a shallow pullback from July-November 2021.

Since December, HSY broke above the resistance at 180 and continued to trend up despite the increasing volatility showed up in the broad market.

It can be observed that the volume within the accumulation structure has been decreasing, suggested that the supply is exhausted, which is a classical volume pattern based on the Wyckoff method. If you would like to find out more on the application of Wyckoff method, watch the YouTube video to find out how I derive the directional bias for the current market.

On the daily chart below, HSY is on a climatic run with the presence of supply, which could be vulnerable for a pullback. Should a reversal happen near the axis line at 192 where the resistance-turned-support, that could provide a decent entry by leaning on the support level at 192.

Flowers Foods (FLO) Price Volume Analysis

FLO has started an accumulation range from September 2020-2021 (refer to the chart below). After the breakout in October 2021 followed by a shallow pullback tested the resistance-turned-support area at 24.5, the markup phase started. So far, FLO is travelling within an up-channel, forming a higher high and a higher low.

It is worth noting the two volume spikes as highlighted in yellow because those two bars containing increasing of supply, which essentially stopped the short term up move. After the spike of volume in the first bar in mid of November, a pullback took place and tested the demand line of the channel.

After an even higher spike of volume in the second bar in mid of December on the breakout, the pullback is mild and shallow with decreasing volume, suggested the supply showed up on the breakout bar has been absorbed.

In the latest 2 bars, there are presence of supply as reflected in the increasing volume together with the rejection tail and the smaller price spread, which could be vulnerable for a pullback. Watch out for a pullback or consolidation before the next rally. A reversal entry or a breakout entry is viable while leaning the support at 27.5.

As the bias for the short term direction of the market is down plus the deterioration of the market breadth, it is essential to monitor how the price of HSY and FLO reacts and wait for a confirmation before execution.

General Mills Shares Slide After Q2 Earnings Disappoint

General Mills shares fell over 5% in pre-market trading on Tuesday after the manufacturer of branded consumer foods reported lower-than-expected earnings in the fiscal second quarter despite the company beating revenue expectations and lifting its annual sales forecast.

The Golden Valley, Minnesota-based company said its earnings per share fell 7% to $0.99, missing the Wall Street consensus estimates of $1.05. However, the company said its net sales rose to $5.02 billion up from $4.72 billion seen a year ago. That was above the market expectations of $4.84 billion.

Operating profit declined 13% to $800 million; constant-currency adjusted operating profit was down 6%, reflecting significant input cost inflation and elevated costs related to supply chain disruptions

In fiscal 2022, the company now expects organic net sales to increase between 4% and 5% up from the previous forecast of 1% to 3% decline. That reflect stronger net sales growth, higher costs, and the impact of the European Yoplait divestiture.

The company’s constant-currency adjusted diluted EPS are now expected to range between down 2% and up 1%, driven by the same changes impacting the adjusted operating profit outlook, including an estimated 1% reduction from the European Yoplait divestiture. Adjusted diluted EPS were previously expected to be toward the higher end of the range of flat to down 2%.

General Mills stock slumped over 5% to 64.35 in pre-market trading on Tuesday. It soared over 15% so far this year.

Executive Comments

“We continued to compete effectively and execute well this quarter in a challenging operating environment,” said General Mills Chairman and Chief Executive Officer Jeff Harmening.

“In the face of an unprecedented combination of input cost inflation and supply chain disruptions, we’re moving quickly to keep our trusted brands on store shelves for consumers while driving net price realization to protect our bottom line. As a result, we now expect to meet or exceed each of our financial targets for the year. We also advanced our portfolio reshaping efforts in the quarter, and we’re more confident than ever that General Mills will emerge from the pandemic a stronger company better geared to generate profitable growth in line with our Accelerate strategy.”

Analyst Comments

“We forecast slight LT organic sales growth after outsized +4% FY20 organic growth on COVID-19 related demand, with muted category and geographic growth. GIS also has a limited margin expansion opportunity (we model +10 bps/yr) with an already efficient cost structure, and we worry about GM pressure given higher commodities,” noted Pamela Kaufman, equity analyst at Morgan Stanley.

General Mills Stock Price Forecast

Eight analysts who offered stock ratings for General Mills in the last three months forecast the average price in 12 months of $67.88 with a high forecast of $74.00 and a low forecast of $64.00.

The average price target represents a 0.13% change from the last price of $67.79. Of those eight analysts, three rated “Buy”, five rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $51 with a high of $68 under a bull scenario and $38 under the worst-case scenario. The firm gave an “Underweight” rating on the food company’s stock.

Several other analysts have also updated their stock outlook. JP Morgan raised the target price to $67 from $62. Deutsche Bank lifted the price objective to $72 from $71. Piper Sandler upped the price target to $74 from $70.

Technical analysis suggests it is good to buy now as 100-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Check out FX Empire’s earnings calendar

Best Stocks, Crypto, and ETFs to Watch – Nike, Micron, Shiba Inu, and SPDR S&P 500 Trust in Focus

Omicron has put a damper on the 2021 holiday season while threatening first quarter disruptions, fueled by high numbers of workers on sick leave or isolating as a result of positive tests, even if asymptomatic. This could aggravate already disrupted supply chains and undermine investor sentiment, raising the potential for negative first quarter U.S. GDP. Economically sensitive funds, including SPDR S&P 500 Trust (SPY), could enter a correction during this period, favoring aggressive short sales.

Dow component Nike Inc. (NKE) reports Q2 2022 earnings after Monday’s closing bell, with analysts expecting a profit of $0.63 per-share on $11.25 billion in revenue. If met, earnings-per-share (EPS) will mark a 19% profit decrease compared to the same quarter in 2020. The stock failed a breakout above the August high at 174.38 in November and investors have been jumping ship since that time, worried that Omicron and pro sports cancellations will impact revenue.

Micron Technology Inc. (MU) broke out of a 7-month downtrend in November and stalled at the .618 Fibonacci retracement level of the 32-point decline about three weeks ago. It’s been oscillating in a trading range between 80 and 89 since that time while background technicals continue to improve.  As a result, market players are positioned for a strong report when the memory giant releases quarterly results in Monday’s post-market.

Shiba Inu broke November support at $0.00003510 at the start of December and has ticked lower into the second half of the month. It’s still trading above the long shadow carved during the Dec. 4th selloff, raising odds that sell stops are accumulating below $0.00002915. A violation of that price level could generate a rapid volatility spike, dumping the cryptocurrency into the .786 Fibonacci retracement level of September into October uptrend at $0.00002280.

The Omicron-induced flight to safety has benefited high dividend stocks that can weather economic headwinds.  General Mills Inc. (GIS) broke out to an all-time high last week, exhibiting high percentage gains rarely seen in the food production stocks. Adding to upside, the company pays a healthy 3.02% forward dividend yield that will ease pain when more favorable conditions return to the ticker tape. GIS reports Q2 2022 earnings ahead of Tuesday’s opening bell.

Catch up on the latest price action with our new ETF performance breakdown.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

Earnings to Watch in Holiday-Shortened Week: Micron Technology, Nike, General Mills and CarMax in Focus

The following is a list of earnings slated for release December 20-24, along with a few previews. Although next week’s earnings are unlikely to have much of an effect on major market movements, it is sufficient to gauge investors’ sentiment.

Earnings Calendar For The Week Of December 20

Monday (December 20)

IN THE SPOTLIGHT: MICRON TECHNOLOGY, NIKE

MICRON TECHNOLOGY: The world’s leading semiconductor manufacturer is expected to report its fiscal first-quarter earnings of $2.01 per share, representing year-over-year growth of more than 155% from $0.78 per share seen in the same quarter a year ago.

The Boise Idaho-based semiconductor company is expected to post revenue growth of over 30% to around $7.7 billion from a year earlier. In the last two years, the company has topped expectations on earnings per share at all times.

“While the underlying demand trends are strong and producer inventory levels are low heading into a period of seasonal strength, there are some signs of inventory adjustments short term after customers-built inventory,” noted Joseph Moore, equity analyst at Morgan Stanley.

“We see demand growth on the back of seasonality, memory elasticity/higher content per unit, and low customer inventories, and very slow supply growth in DRAM given declines in capex. We continue to believe that memory stocks have a relatively well-defined earnings cycle, though highs and lows are likely to be better than they have been historically.”

NIKE: The world’s largest athletic footwear and apparel seller is expected to report earnings per share of $0.62 in the fiscal second quarter, which represents a year-over-year decline of over 20% from $0.78 per share seen in the same period a year ago.

The Beaverton, Oregon, footwear retailer would post revenue of $11.23 billion, down about 0.1% from a year earlier. For four quarters in a row, the company has exceeded expectations on earnings per share.

“We are raising our price target to $189 representing 40x our FY23E EPS of $4.73. We don’t believe management will make significant changes to its FY22 guidance but view the business as running above plan in N. America and Europe (EMEA). The gross margin could be a lever to raise back to prior guidance (+150bps at the high end). China is a point of uncertainty with investors and the model,” noted John Kernan, equity analyst at Cowen.

“We are raising our expectations for Q2, largely driven by an incrementally stronger outlook for N.A. and EMEA, with less conviction behind results in Greater China. We now model Q2 revenues +3% y/y ex FX to $11.52B vs consensus of $11.255B, driven by N.A. +2% (+3% vs 2019 compared to Q1’s +14% vs 2019), EMEA +1% (+17% vs 2019compared to Q1’s +19%), Greater China -2%, and APLA +10%.

We forecast gross margin expanding +130bps y/y, as higher full-price selling and DTC mix offsets higher freight costs and some product cost inflation (we include gross margin quarterly bps drivers in Fig 5). On a 2-year stack basis, product costs have deleveraged 240bps or more in each of the last two quarters. We see SG&A dollars growing +10% y/y to 31.1% of revenues (+204bps y/y). Ultimately, this drives EPS of $0.75 vs consensus of $0.63 – we model a 100bps impact from FX.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 20

TICKER COMPANY EPS FORECAST
MU Micron Technology, Inc.(MU) $2.01
NKE NIKE, Inc.(NKE) $0.63
BRZE Braze, Inc.(BRZE) $0.63

Tuesday (December 21)

IN THE SPOTLIGHT: GENERAL MILLS

The Minneapolis Minnesota-based company, General Mills, is expected to report its fiscal second-quarter earnings of $1.05 per share down from $1.06 per share seen in the same period a year ago.

The consumer foods manufacturer’s revenue would decline over 2% year-over-year to around $4.8 billion up from $4.72 billion seen a year earlier. In the last two years, the company has missed earnings per share estimates only once.

“While growth abounded for domestic food manufacturers as consumers rushed to stock up on essential wares as COVID-19 took hold, it hasn’t been a pure panacea for this intensely competitive space. And we think the future trajectory hinges on which of the trends that took centre stage the past few years will hold,” noted Erin Lash, Sector Director at Morningstar.

“In this context, while we concede many consumers honed their cooking skills while sheltering at home, as busy schedules resume, we think food consumption will revert such that a greater portion of budgets is expended outside of the home, in line with pre-pandemic levels. Further, although grocers simplified shelf assortments to maximize productivity during the peak in demand, we think the variety will return as supply chains normalize.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 21

TICKER COMPANY EPS FORECAST
FDS FactSet Research Systems Inc.(FDS) $2.99
GIS General Mills, Inc.(GIS) $1.05
NEOG Neogen Corporation(NEOG) $0.17

Wednesday (December 22)

IN THE SPOTLIGHT: CARMAX

The used-car retailer CarMax is expected to report its fiscal third-quarter earnings of $1.49 per share, which represents year-over-year growth of about 5% from $1.42 per share seen in the same period a year ago.

The Richmond, Virginia-based used car giant would post year-over-year revenue growth of nearly 50% to $7.63 billion in the quarter ended November 2021. In the last two years, the company has exceeded expectations on earnings per share with an average surprise of over 80%.

“Based on historical & current data, we expect to see strength in used car sales as we move forward, particularly given the shortage of new car inventory, manufacturers pulling back on incentives, and potential tailwinds from de-urbanization, mass transit, ride-sharing, and travel. We expect CarMax (KMX) to successfully execute their Omnichannel strategy, providing both online and physical dealer options to consumers,” noted Adam Jonas, equity analyst at Morgan Stanley.

KMX has consistently generated >$2,000 GPU and has one of the strongest balance sheets amongst the dealers. Long term, we estimate strong growth in same-store sales along new store openings, allowing KMX to achieve operating leverage, with upside from the omni-channel rollout.”

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE DECEMBER 22

TICKER COMPANY EPS FORECAST
CTAS Cintas Corporation(CTAS) $2.62
KMX CarMax, Inc.(KMX) $1.5
PAYX Paychex, Inc.(PAYX) $0.79

Thursday (December 23)

No major earnings are scheduled for release.

Friday (December 24)

The New York Stock Exchange and Nasdaq observe Christmas, markets will be closed on Friday.

General Mills Trading Higher After Strong Quarter

General Mills Inc. (GIS) is trading higher by more than 3% on Wednesday after beating fiscal Q1 2022 estimates and targeting the high end of prior guidance. The food giant posted a profit of $0.99 per-share, $0.10 better than expectations, while revenue rose a modest 4% year-over-year to $4.54 billion, nearly $250 million higher than consensus. The company now expects to report a small contraction in organic net sales due to stronger-than expected first quarter performance.

Another Pandemic Hangover

Food producers booked windfall sales in the first half of 2020 as pandemic lockdowns encouraged consumers to load up on staples and household goods. They have failed to match those metrics so far in 2021, generating a fair share of selling pressure, but are slowly approaching long-term equilibrium. However, inflation and supply constraints are now major headwinds, with limited raw materials forcing producers to pass costs onto supermarkets and consumers.

Morgan Stanley analyst Pamela Kaufman downgraded the stock ahead of the news, noting that “we are cautious on GIS as: 1) organic sales growth should trail peers due to its relatively weaker end markets, including cereal (~20% of NA sales, -1.5% 10-year CAGR), and yogurt (9% of sales; +0.5% CAGR); while Pet is only 10% of sales; 2) market share losses (-45 bps YTD); and 3) downside to consensus 2022E forecasts for 25 bps/35 bps of gross/operating margin compression (vs. MSe -96 bps/-82 bps) given operating deleverage and rising inflation”.

Wall Street and Technical Outlook

Wall Street consensus is mixed, with a ‘Hold’ rating based upon 3 ‘Buy’, 2 ‘Overweight’, 13 ‘Hold’, 1 ‘Underweight’, and 2 ‘Sell’ recommendations. Price targets currently range from a low of $50 to a Street-high $71 while the stock will open Wednesday’s session about $5 below the median $64 target. The four-year high posted in August 2020 matches this target, potentially supporting a slow but steady advance. General Mills pays a hefty 3.47% forward dividend yield.

General Mills stalled within eight points of 2016’s all-time high in the 70s in August 2020, entering a decline that found support in the low 50s at the start of 2021. The stock has carved a lower high and higher low since that time while long-term relative strength readings yield mixed messages. However, accumulation has surged since June and is now testing the 2020 peak, signaling hidden buying pressure that could support an eventual test at resistance in the mid-60s.

For a look at all of today’s economic events, check out our economic calendar.

Disclosure: the author held no positions in aforementioned securities at the time of publication. 

General Mills Reports Q4 Earnings on Wednesday; Here’s What to Expect

The Minneapolis, Minnesota-based company General Mills is expected to report its fiscal fourth-quarter earnings of $0.85 per share, which represents a year-over-year decline of over 20%, down from $1.10 per share seen in the same period a year ago.

The consumer foods manufacturer’s revenue would decline over 14% year-over-year to $4.3 billion. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 6%.

General Mills shares rose over 2% so far this year. The stock traded 1.1% higher at $60.26 on Monday

Analyst Comments

Mills reports Q4’21 results this Wednesday. Although cost inflation concerns remain front and center, we believe General Mills could be better equipped to manage given productivity, pricing, mix, and restructuring benefits, all while C-Stores/Foodservice is improving and Pet is grinding on all cylinders, leaving the FAH reversal not entirely dire. We simply remain sidelined given NT cost pressure risk,” noted Rob Dickerson, equity analyst at Jefferies.

“Looking for $3.65 in FY’22 EPS; $63 PT; remain sidelined. After factoring in the Tyson treats acquisition, recent restructuring cash costs, and the European yogurt divestment, our $3.65 FY’22 EPS forecast remains unchanged. Although the setup seems better here relative to other large-cap food companies, we’re still sidelined given NT cost pressures and valuation. We now value the shares off 13.5x EBITDA vs. current market 13x, as we believe strategic shifts warrant a slight premium to the group.”

General Mills Stock Price Forecast

Three analysts who offered stock ratings for General Mills in the last three months forecast the average price in 12 months of $66.00 with a high forecast of $69.00 and a low forecast of $63.00.

The average price target represents 9.47% from the last price of $60.29. Of those three analysts, two rated “Buy”, one rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the stock price forecast of $57 with a high of $79 under a bull scenario and $37 under the worst-case scenario. The firm gave an “Equal-weight” rating on the food company’s stock.

“We forecast slight LT organic sales growth after outsized +4% FY20 organic growth on COVID related demand, with muted category and geographic growth. GIS also has a limited margin expansion opportunity (we model +10 bps/yr) with an already efficient cost structure, and we worry about GM pressure given higher commodities,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

Several other analysts have also updated their stock outlook. Jefferies raised the price target to $63 from $62. JP Morgan lifted the target price to $58 from $57. Credit Suisse increased the target price to $68 from $64.

Check out FX Empire’s earnings calendar

Earnings to Watch Next Week: Constellation Brands, General Mills and Acuity Brands in Focus

Earnings Calendar For The Week Of June 28

Monday (June 28)

Ticker Company EPS Forecast
MLHR Herman Miller $0.39

Tuesday (June 29)

Ticker Company EPS Forecast
AVAV AeroVironment $0.81

Wednesday (June 30)

IN THE SPOTLIGHT: CONSTELLATION BRANDS, GENERAL MILLS

CONSTELLATION BRANDS: The New York-based Fortune 500 international beverage alcohol company Constellation Brands is expected to report its fiscal first-quarter earnings of $2.36 per share on Wednesday, which represents year-over-year growth of about 3% from $2.30 per share seen in the same quarter a year ago.

The corona beer marker’s revenue is predicted to rise over 4% to around $2.05 billion during the quarter ended May 2021. That comes after the company reported better-than-expected earnings in the previous quarter with profit and revenue exceeding analysts’ expectations.

Constellation Brands’ better-than-expected results, which will be announced on June 30, would help the stock hit new highs in the near term. Constellation Brands shares rose over 3% so far this year.

“We are lowering our 1Q outlook for beer, given tough off-premise revenue comps, in addition to input cost inflation and higher investment spend in the earlier part of the year. As such, we are now looking for STZ to deliver EPS of $2.40 (ex-WEED), which is two cents ahead of consensus estimates,” noted Vivien Azer, equity analyst at Cowen.

“On a total company basis, we are modeling for 4.3% reported revenue growth (vs. +4.0% Street), driven by 19% growth in beer, though offset by a ~31% decline in wine & spirits. On an organic basis, we are modeling for total company revenue growth of 14.3%, with the higher growth driven by LSD organic growth in wine & spirits.”

GENERAL MILLS: The Golden Valley, Minnesota-based company is expected to report its fiscal fourth-quarter earnings of $0.85 per share, which represents a year-over-year decline of over 20%, down from $1.10 per share seen in the same period a year ago.

The consumer foods manufacturer’s revenue would decline over 14% year-over-year to $4.3 billion. In the last four consecutive quarters, on average, the company has delivered an earnings surprise of over 6%.

“We forecast slight LT organic sales growth after outsized +4% FY20 organic growth on COVID-19 related demand, with muted category and geographic growth. GIS also has a limited margin expansion opportunity (we model +10 bps/yr) with an already efficient cost structure, and we worry about GM pressure given higher commodities,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JUNE 30

Ticker Company EPS Forecast
STZ Constellation Brands $2.36
UNF UniFirst $1.84
SJR Shaw Communications USA $0.27
BBBY Bed Bath & Beyond Inc. $0.08
MU Micron Technology $1.70
GIS General Mills $0.85

Thursday (July 1)

IN THE SPOTLIGHT: ACUITY BRANDS

The lighting and building management firm is expected to report its fiscal third-quarter earnings of $2.24 per share, which represents year-over-year growth of over 15%, up from $1.94 per share seen in same period a year ago.

The Atlanta, Georgia-based company would post year-over-year revenue growth of nearly 8% to $ 836.4 million.

TAKE A LOOK AT OUR EARNINGS CALENDAR FOR THE FULL RELEASES FOR THE JULY 1

Ticker Company EPS Forecast
AYI Acuity Brands $2.24
WBA Walgreens Boots Alliance $1.15
MKC McCormick $0.62
MFGP Micro Focus ADR $0.83
MCRO Micro Focus Intl £0.77

Friday (July 2)

There are no major earnings scheduled.

General Mills Shares Slump as Q3 Earnings Disappoint

General Mills’ shares slumped over 5% on Wednesday after the manufacturer of branded consumer foods reported lower-than-expected earnings in the third quarter.

The Golden Valley, Minnesota-based company said its net sales increased 8% to $4.5 billion and organic net sales increased 7%. The company said its operating profit increased 27% to $827 million and diluted earnings per share (EPS) totaled $0.96, up 30 percent from the prior year; Adjusted diluted EPS increased 6 percent to $0.82. However, that missed Wall Street’s consensus estimates of $0.84 per share.

General Mills shares, which rose about 10% in 2020, slumped over 5% to $58.04 on Wednesday.

The company expects full-year organic net sales to increase approximately 3.5 percent, reflecting strong year-to-date growth, partially offset by a difficult comparison in the fourth quarter reflecting the initial pandemic-driven surge in at-home food demand as well as the extra month of results in the Pet segment.

On the bottom line, better-than-expected first-half adjusted operating profit margin results are now expected to be offset by higher input cost inflation and higher logistics costs in the second half. As a result, the full-year fiscal 2021 adjusted operating profit margin is expected to be approximately in line with fiscal 2020 levels, consistent with the guidance the company outlined at the beginning of the year, the company said in the statement.

Analyst Comments

“While noting investors are looking past near-term result to a post-COVID-19 outlook, and fund flows between staples vs discretionary names (and value vs growth) have driven much of the group’s stock performance lately, we believe Mills’s results will be perceived negatively given a large GM miss, as commodities ramp-up, an issue we have been highlighting for the CPG group and food sector in particular, despite solid organic sales,” noted Dara Mohsenian, equity analyst at Morgan Stanley.

“We forecast slight LT organic sales growth after outsized +4% FY20 organic growth on COVID-19 related demand, with muted category and geographic growth. GIS also has a limited margin expansion opportunity (we model +10 bps/yr) with an already efficient cost structure.”

General Mills Stock Price Forecast

Five analysts who offered stock ratings for General Mills in the last three months forecast the average price in 12 months of $61.20 with a high forecast of $66.00 and a low forecast of $55.00.

The average price target represents a 5.43% increase from the last price of $58.05. Of those five analysts, one rated “Buy”, four rated “Hold” while none rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $57 with a high of $79 under a bull scenario and $37 under the worst-case scenario. The firm gave an “Equal-weight” rating on the food company’s stock.

Several other analysts have also updated their stock outlook. Credit Suisse raised the price target to $66 from $62. Jefferies upped the price objective to $63 from $59. JPMorgan lifted the target price to $59 from $55. Evercore ISI lowered their price target to $60 from $66.

Upside and Downside Risks

Risks to Upside: Strong topline growth in the US with yogurt rebound, improved distribution/innovation (with LT pantry/shelf space gains post-COVID-19 pantry-loading), strong margin expansion on higher cost savings/lower commodity inflation, and BUFF upside – highlighted by Morgan Stanley.

Risks to Downside: Volume pressure from health/wellness, pricing pressure, weak margin expansion on higher reinvestment to drive topline, commodity cost pressure, and BUFF downside.

Check out FX Empire’s earnings calendar