General Mills (NASDAQ:GIS) reports its third-quarter 2019 earnings tomorrow after the markets close. The beleaguered packaged foods company has beaten analyst estimates in three out of the last four quarters. As a result, GIS stock is up 23% year to date through March 15 compared to a 13% gain by the S&P 500 index.

So, the big question is whether General Mills can deliver another better-than-expected quarter?

Here are three reasons why it just might come through.

Estimate for Q3 2019

According to Zacks, General Mills is expected to deliver $4.18 billion in revenue in the third quarter, 7.6% higher than a year earlier; bottom-line earnings of 69 cents a share is the consensus, 12.7% lower than Q3 2018.

In last year’s Q3 General Mills had been expected by analysts to deliver $3.78 billion in revenue and 78 cents in earnings. Sales came $100 million higher and profits that were a penny better than expected.

In Q2 2019, General Mills had EPS of 85 cents, four cents higher than analyst expectations.

The company’s riding an earnings hot streak and it’s reasonable to expect it to beat the odds again.

The Positive Aspect of Its Business

Two years ago, I wrote that Blue Buffalo was one of the best stocks to buy for the next decade. My reasoning centered on the premise that people would continue to spend more on healthy foods, both for themselves and their pets. Growing its revenues at a healthy pace, the pet foods maker was a natural stock to own.

General Mills wisely acquired Blue Buffalo for $8 billion in February 2018, paying a 23% premium. That was a bargain, if you ask me.

“The addition of BLUE to our family of well-loved brands provides General Mills with the leading position in the large and growing Wholesome Natural pet food category and represents a significant milestone as we reshape our portfolio to drive additional growth and value creation for our shareholders,” explained General Mills chairman and CEO Jeff Harmening in announcing the deal a year ago.

As anyone who follows packaged goods knows, the cereal category is anything but healthy. The acquisition of Blue Buffalo gave General Mills’ overall business a much needed shot in the arm. However, that hasn’t been reflected in the GIS stock price, which is down 10% since the acquisition was announced.

It Might Have Overpaid In the Short Term

Some felt that General Mills overpaid for Blue Buffalo, paying 6.3 times sales, more than double the 2.5x sales that J.M. Smucker (NYSE:SJM) paid for Big Heart Pet Brands (Meow Mix, Milkbone, etc.) in 2015.

I understand that sentiment.

I’m generally not a fan of big acquisitions because they typically don’t generate the synergies and savings projected nor do they provide the expected growth, either.

However, in the case of General Mills, it had to do something because its cereal business was imploding, losing almost 3% growth in revenue over five years. Investors were avoiding GIS stock as a result.

Now, it’s got some momentum, and analysts are warming to General Mills stock.

Deutsche Bank (NYSE:DB) analyst Rob Dickerson recently upgraded GIS to a buy and increased his 12-month target price by 26% to $54, 14% higher than where it’s currently trading.

Dickerson believes that investors aren’t appropriately valuing Blue Buffalo given the growth it’s delivering to General Mills’ overall business. The company’s introduced Blue Buffalo to Walmart (NYSE:WMT) and the brand’s been well received by customers, giving the pet food manufacturer an additional revenue stream beyond pet specialty stores, etc.

“Given we’ve watched base momentum stabilize and have better perspective on Blue Buffalo, we finally upgrade the shares to a buy, driven by an overly discounted valuation vis-à-vis go-forward growth potential relative to peers,” Dickerson wrote in a note to clients on March 14.

I couldn’t have said it any better myself.

Bottom Line on GIS Stock

Blue Buffalo is the real deal, and it’s a big reason investors should consider adding GIS stock for their portfolios. Unless General Mills’ earnings show further deterioration in its core business — Cheerios, Haagen-Dazs, Pillsbury, Nature Valley, etc. — or Blue Buffalo falters in some way, I don’t think a 12% decline in earnings is anything to worry over.

Sometimes, you have to take one step back to go two steps forward. Come Wednesday; I expect GIS to do just that.

At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.