The wide-moat firm's stable of strong brands, entrenched relationships with retailers, and expansive global scale should ensure it withstands looming headwinds.
Erin Lash, CFA
10:47 AM | Email Article
’s share price has come under pressure, falling at a high-single-digit rate over the past month. We attribute a portion of this pressure to concerns surrounding the competitive landscape, particularly after Amazon inked a deal to acquire Whole Foods. But in our view, this deal may actually accelerate consumer adoption of purchasing groceries online (which has proved elusive up to this point, accounting for just a low-single-digit percentage of total sales). Further, the differing assortment mix at Whole Foods compared with Amazon's existing grocery efforts also supports our contention that this combination is unlikely to constrain the negotiating leverage of consumer product firms.
Erin Lash, CFA, is a director of consumer sector equity research for Morningstar.
Beyond this, Mondelez disclosed that the recent global cyberattack would constrain its second-quarter top-line performance to the tune of 300 basis points, while also resulting in one-time charges in both the second and third quarter of fiscal 2017 (but was light on specifics). Although this is far from a positive, management maintained its full-year guidance for around 1% organic sales growth and adjusted operating margins approaching 16% (which generally aligns with our forecast). And we don’t expect this near-term challenge to prompt a change to our long-term outlook--for 4% annual sales growth and 350 basis points of operating margin expansion to 20% by fiscal 2026.
Even in the face of intense competitive pressures and slowing global growth, we believe the firm’s stable of strong brands (with seven that each generate more than $1 billion in annual sales, including Oreo, Cadbury, LU, and Trident), entrenched relationships with retailers, and expansive global scale (more than 75% of revenue derived outside North America) should ensure it withstands looming headwinds. In this context, and given that shares are trading at nearly at a 15% discount to our $50 fair value estimate, we think long-term investors should sweeten to this wide-moat name.
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