On Wednesday, Piper Sandler adjusted its outlook on shares of Mondelez (NASDAQ:MDLZ) International (NASDAQ:MDLZ), reducing the price target from $76.00 to $74.00, while maintaining an Overweight rating on the stock. The firm's revised stance comes in response to concerns regarding cocoa costs, which are expected to remain high due to historically low stocks to grind ratios—a key indicator that suggests an upward pressure on cocoa prices.
The analysis by Piper Sandler points to the loss of cocoa trees from disease and mining activities as additional factors contributing to the anticipated sustained increase in cocoa costs. This situation has prompted the firm to update its earnings estimates for Mondelez, projecting tighter EBIT margins as a result of the persistent cocoa price elevation.
Specifically, Piper Sandler has trimmed its earnings per share (EPS) predictions for Mondelez, shaving off $0.06 and $0.07 for the fiscal years 2024 and 2025, respectively. The new EPS forecasts stand at $3.51 for 2024E, down from $3.57, and $3.50 for 2025E, also down from $3.57. Despite the reduction in the price target, the new target still implies a valuation of approximately 21 times the expected 2025 earnings per share.
The firm's commentary sheds light on the challenges faced by Mondelez in the face of volatile cocoa markets and the broader impact these costs can have on the company's financial performance. With the updated estimates, investors are provided with a revised outlook that reflects the potential impact of external commodity market conditions on Mondelez's profitability.
In other recent news, Mondelez International has been the subject of several significant developments. The company is set to unveil its third-quarter earnings for 2024, with projections from Citi suggesting these results will surpass consensus estimates.
Mondelez has also agreed to acquire a majority stake in Evirth, a leading Chinese manufacturer of frozen-to-chilled cakes and pastries, pending regulatory approval. In addition, the company has issued $500 million in senior notes due 2034.
Mondelez's strategic moves have been recognized by several analyst firms. Redburn-Atlantic initiated coverage on Mondelez stock with a Buy rating, highlighting the company's potential for organic sales growth and operating margin expansion in key markets.
Citi also maintains a long-term positive outlook for Mondelez, despite expected cocoa inflation in the fourth quarter. Other firms, including Goldman Sachs, Piper Sandler, and DA Davidson, have also issued positive ratings for the company.
The company's strategies for growth include expanding its core chocolate and biscuits business, diversifying into rapidly growing snack categories, and increasing brand penetration in both established and emerging markets. These developments indicate a proactive approach to navigating market challenges and seizing growth opportunities.
InvestingPro Insights
In light of Piper Sandler's adjusted outlook on Mondelez International, InvestingPro data offers additional context to the company's financial position. Mondelez's current P/E ratio stands at 24.42, with an adjusted P/E ratio of 19.85 for the last twelve months as of Q2 2024. This suggests that despite the concerns over cocoa costs, the market still values Mondelez at a premium compared to earnings.
The company's revenue for the last twelve months as of Q2 2024 was $35.98 billion, with a growth rate of 5.41%. This growth, coupled with a gross profit margin of 40.34%, indicates that Mondelez has maintained its ability to generate sales and preserve margins, even in the face of potential cost pressures.
An InvestingPro Tip highlights that Mondelez's dividend payments have grown for 10 consecutive years, with a current dividend yield of 2.63%. This consistent dividend growth, which saw a 22.08% increase in the last twelve months, may provide some reassurance to investors concerned about the impact of rising cocoa costs on the company's financial health.
Another relevant InvestingPro Tip notes that analysts have recently revised their earnings upwards for the coming year. This positive outlook from analysts contrasts with Piper Sandler's reduced EPS estimates, suggesting a range of opinions on Mondelez's future performance.
For investors seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Mondelez International, providing a deeper understanding of the company's financial position and market sentiment.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.