On Wednesday, Evercore ISI, a well-regarded investment firm, increased its price target for WK Kellogg (NYSE:K) (NYSE:KLG) shares from $21.00 to $23.00, while keeping a rating of 'In Line' for the stock. The adjustment follows Kellogg's reported progress in gross margin gains and sales stabilization.
Kellogg, a major player in the grocery food sector, has seen its valuation discount compared to its peers decrease recently. The company's shares were trading at approximately 10 times the 2024 estimated earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), which is closer to the 11.5 times average of its grocery food peers.
This change in valuation is attributed to Kellogg's significant gross margin improvement of 265 basis points over the last two quarters and a stabilization in sales trends, with only a 1% decrease in consumption in the last 12 weeks.
Evercore ISI has decided to maintain its estimated EBITDA for Kellogg for 2024, which implies a year-over-year growth of 5%, but has increased the estimated EBITDA for 2025, now expecting a 7% growth. The firm cites better control over selling, general, and administrative (SG&A) costs as the reason for the improved 2025 forecast.
The new price target of $23.00 is based on 8.5 times the projected EBITDA for 2025, which represents a two-turn discount compared to Kellogg's center-store peers. According to Evercore ISI, this discount could potentially narrow if Kellogg provides visibility into greater supply chain savings, an event that may occur in the second half of 2024.
InvestingPro Insights
As WK Kellogg (NYSE:KLG) garners attention with Evercore ISI's updated price target, current metrics from InvestingPro provide further context for potential investors. Kellogg's market capitalization stands at $2.08 billion, with a Price/Earnings (P/E) ratio of 12.3, which adjusts to a more attractive 10.5 when considering the last twelve months as of Q1 2024. This suggests a company that is reasonably valued in terms of earnings. Additionally, the stock is trading close to its 52-week high, at 98.58% of this peak, reflecting strong market confidence.
InvestingPro Tips highlight that Kellogg's valuation implies a strong free cash flow yield, which can be an indicator of the company's ability to generate cash and potentially return value to shareholders. Moreover, the company is not only profitable over the last twelve months but analysts also predict profitability for this year. These factors may offer reassurance to investors looking for stable financial performance. For those interested in further analysis, there are additional InvestingPro Tips available that can provide deeper insights into Kellogg's financial health and future prospects.
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