- Wondering whether General Mills at around US$36.45 is starting to look like value or still has more room to fall? This article focuses on what the current price really implies.
- The stock has seen sharp moves recently, with a 1.5% decline over the last week, a 19.4% decline over the last month, a 20.3% decline year to date and a 35.2% decline over the last year. The 3 year and 5 year returns sit at 52.0% and 28.5% declines respectively.
- These price moves have kept General Mills in focus as investors reassess the outlook for a well known consumer staples name. Recent coverage has largely centered on what the current share price implies for long term shareholders rather than on short term trading catalysts.
- According to Simply Wall St's valuation checks, General Mills has a value score of 5 out of 6. The rest of this article will walk through the key valuation approaches behind that, before finishing with a broader way to think about what valuation really means for you as an investor.
Find out why General Mills's -35.2% return over the last year is lagging behind its peers.
Approach 1: General Mills Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model takes estimates of a company’s future cash flows and discounts them back to today to arrive at an implied value per share. It is essentially asking what those future dollars are worth right now.
For General Mills, the model uses a 2 Stage Free Cash Flow to Equity approach built on cash flow projections. The latest twelve month Free Cash Flow is about $1.57b. Analysts provide explicit forecasts for several years, and Simply Wall St then extends those out to 10 years using its own assumptions. By 2029, projected Free Cash Flow is $2.19b, and later years continue to be forecast using the same framework.
When all those future cash flows are discounted back to today, the DCF model produces an estimated intrinsic value of US$113.13 per share. Compared with the current share price of about US$36.45, this implies the stock is 67.8% undervalued on this specific set of assumptions.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests General Mills is undervalued by 67.8%. Track this in your watchlist or portfolio, or discover 62 more high quality undervalued stocks.
Approach 2: General Mills Price vs Earnings
For profitable companies, the P/E ratio is a useful yardstick because it directly links what you pay per share to the earnings that each share generates. It also conveniently captures what the market is willing to pay for those earnings at a given point in time.
What counts as a “normal” P/E often reflects two things: how quickly earnings are expected to grow and how risky those earnings are perceived to be. Higher expected growth and lower risk usually support a higher P/E, while slower growth or higher risk tend to be associated with a lower P/E.
General Mills currently trades on a P/E of 8.83x. That sits below the Food industry average of 19.86x and the peer group average of 41.38x. Simply Wall St’s Fair Ratio framework estimates a company specific P/E of 14.75x for General Mills, based on factors such as its earnings profile, industry, profit margins, market value and risk characteristics.
This Fair Ratio aims to be more useful than a simple comparison with industry or peers because it adjusts for the company’s own growth outlook, risk factors, margins, sector and size. With the current P/E of 8.83x versus a Fair Ratio of 14.75x, the shares screen as undervalued on this metric.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your General Mills Narrative
Earlier it was mentioned that there is an even better way to understand valuation, so Narratives are introduced, which let you attach a clear story about General Mills to the numbers, link that story to a forecast for revenue, earnings and margins, and turn it into a Fair Value that can be compared with the current share price. On Simply Wall St’s Community page, Narratives are available as an easy tool that updates as new news or earnings arrive, so your Fair Value does not stay static while the facts change. For General Mills, one Narrative currently points to a Fair Value of about US$73.07 per share with revenue assumptions around US$22b to US$23b, profit margins near 13% and a future P/E of 15.48x, while another much more cautious Narrative works off a Fair Value of US$35.00 with revenue drifting toward US$17.7b, profit margins closer to 9% and a future P/E of 13.32x. This shows how two investors can look at the same company, plug in different expectations and end up with very different views on whether today’s US$36.45 price looks attractive or not.
For General Mills however we will make it really easy for you with previews of two leading General Mills narratives:
First is a more optimistic take that leans on gradual recovery in earnings quality over time.
Fair value: US$41.53 per share
Implied discount to fair value: about 12.2% based on the current US$36.45 price
Revenue growth assumption: 8.4%
- Analysts expect revenue to stay broadly flat in the near term, with profit margins easing from about 12.0% to 10.4% as General Mills keeps reinvesting in pricing, media and product refreshes.
- This view assumes earnings of about US$1.9b by March 2029 and a future P/E of roughly 13.2x, which is below the current US Food industry P/E of 20.6x.
- Analysts using this narrative see value at a consensus price target of US$41.53, even though they are assuming lower margins and earnings than today.
Now here is a more cautious story that aligns more closely with the bearish analyst cohort.
Fair value: US$35.00 per share
Implied premium to fair value: about 4.1% based on the current US$36.45 price
Revenue growth assumption: 1.9% decline each year
- Bears see revenue shrinking by 1.9% a year and profit margins moving from about 13.5% to 9.0% as higher media spend, promotions and fresh pet investments keep pressure on profitability.
- This view assumes earnings fall to roughly US$1.6b by March 2029, with the shares trading on a future P/E of about 13.3x, again below the broader US Food industry P/E of 22.6x.
- On this narrative, a fair value of US$35.00 sits slightly below today’s price, so the focus is on execution risk around remarkability spending, portfolio reshaping and the pet segment.
Both narratives use the same current share price of about US$36.45 but tell very different stories about where revenue, margins and earnings could settle. Your decision comes down to which set of assumptions feels closer to how you see General Mills and how much downside or upside you are comfortable underwriting at today’s price.
Do you think there's more to the story for General Mills? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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