General Mills (NYSE:GIS) reports earnings for the quarter ending Aug. 31, 2011, before the market opens Wednesday. Investors can expect another solid report from this company that regularly meets Wall Street expectations.
Results for the period will go a long way in continuing impressive gains since shares bottomed on Aug. 10 at $34.95 per share. The stock is up 8% since that time but still trades below the $40 level reached in May.
Investors might be flocking to this defensive stock given the uncertainty in the market. The company pays a solid 3.2% dividend, so that might be attracting investors as well. Regardless of fears of a double-dip recession, investors should be able to rely on General Mills for stability.
That has been the case during the past four quarters when the company tracked very closely to average Wall Street estimates of profits:
For the last quarter reported ending May 31, General Mills was able to withstand higher commodity prices and still meet expectations. In the period ending Aug. 31, the average estimate for earnings is 62 cents per share. Ninety days ago the estimate was higher, at 69 cents per share. For the full year, the average Wall Street estimate for the year ending May 31, 2012, is $2.61 per share. In the following year, profits are expected to grow by 8% to $2.81 per share. At current prices, General Mills trades for 14 times current fiscal-year estimated earnings.
When the company reported results at the end of June, shares moved slightly higher. It was a yawner of a report, with guidance for the remainder for the future reaffirmed. Wall Street has mixed views on the company, with the average recommendation being to hold the stock. The attraction for investors would appear to be the strong dividend.
Over the past 12 months, shares of General Mills have moved slightly higher:
Some sort of catalyst is needed to move the needle after a company releases earnings. With General Mills, we have a defensive stock in the consumer goods business that should do just about what is expected of it. I don’t see a catalyst for a significant win or loss here when the company reports.
While the 3%-plus dividend is attractive, those trading earnings care little as the holding period of a trade is short-term in nature. The most recent Wall Street rating on the stock occurred in July, at which time, Argus lowered its view of the stock to “hold” from “buy.”
From a valuation perspective, GIS is expensive relative to expected growth of profits. Upside for this stock might be limited, but there is a downside. If the company misses expectations, look for shares to sell off somewhat. Nothing in General Mills’ recent operating performance would indicate a big miss, but one never does really know.
When the company reports results Wednesday, the reaction is likely to be muted. Demand for dividend stocks still is strong given the current economic uncertainty. On guidance, I would expect General Mills to reaffirm previous forecasts. This is one boring stock. Find opportunity elsewhere.
Other companies reporting results this week include: AutoZone (NYSE:AZO), FedEx (NYSE:FDX), CarMax (NYSE:KMX) and Carnival Corp. (NYSE:CCL).
