Is Mondelez Stock Overvalued?

The company behind Oreo, Ritz, LU, Clif Bar, and Tate’s Bake Shop snacks are all under the Mondelez  (NASDAQ:MDLZ) that has a reach that extends to more than 150 countries around the world.

It’s a leader in biscuits, including cookies and crackers, and also holds the second-biggest position in the chocolate market, as well as having a stake in gum and candy to powdered drinks and everyday groceries.

On the downside, eleven analysts have revised their earnings estimates down for the upcoming quarter so is Mondelez too pricey?

Q3 Profits Growing Faster Than Revenues

For the fiscal 2024 third quarter, net revenues increased by 4% year-over-year to $9.20 billion while adjusted gross profit grew at a faster pace by 10.3% from the year-ago figure of $3.73 billion. Operating income rose by 20.9% from the prior year’s period to $1.74 billion.

Adjusted earnings before income taxes increased 23.2% year-over-year to $1.72 billion while net earnings and adjusted EPS attributable to Mondelez climbed 25% and 28.6% versus last year to reach $1.33 billion and $0.99, respectively.

Mondelez’s trailing-12-month gross profit margin of 38.77%, slightly above the industry average of 35.90% while trailing-12-month EBITDA margin is 20.51% also well above the average of rivals which sits at 12.84%. 

3%+ Dividend Plus an 11 Year Streak

Mondelez remains an attractive play for income-oriented investors thanks to a business model rich in cash flows and a predictably reliable business model. Last quarter alone it spit out nearly $1 billion in free cash flows, $989 million to be precise.

And for those looking to ride along on the coattails of inflation, Mondelez has grown its dividends for 11 years in a row and pays an annual dividend of $1.88, which translates to a yield of 3.34%.

Dividend payments have increased at a pretty good rate of 10.4% annually over the past five years and the four-year average dividend yield is 2.24%. Looking to next quarter, the Board of Directors announced it will pay $0.47 per share for Class A common stock as a quarterly dividend. 

Partnerships Growing Around the World

Like just about every other non-tech company Mondelez has realized it too needs to migrate ever more into the world of the Magnificent 7 and began a partnership with Amazon Web Services to speed up its digital transformation. AWS will be its cloud service partner to improve operations, whether on the safety, speed, or dependability fronts.

A major transition in this regard is the migration of the ERP system to SAP RISE on the AWS platform for better integration and effective backend processes.

On the tech front, Mondelez is also looking to chang how it markets by capitalizing on advanced artificial intelligence and generative AI systems. Created together with Accenture plc (NYSE: ACN) and Publicis Groupe, the idea is to help Mondelez make custom texts, pictures, and videos more rapidly.

Mondelez has also been smart in looking to snap up talent thanks to its SnackFutures Ventures, the company’s corporate venture capital arm. This is the vehicle it uses to buy up-and-coming popular brands, or take a stake in them. For example, it snapped up a small share in Urban Legend, a bakery brand from the United Kingdom that is famous for its “better-for-you” fresh doughnuts and pastries.

Across the globe, it has also bought a majority stake in Evirth, a top Chinese company making cakes and pastries. This shows that Mondelez has a plan to grow in Asia’s fast-growing baked goods market.

Is Mondelez Stock Overvalued?

Mondelez stock does not appear overvalued and in fact seems undervalued at this time with upside to $73.44 per share, a 19.6% upside.

While analysts are pretty upbeat, valuation multiples are stretched across the board, including the flagship earnings multiple that sits now at 19.7x versus the average of the peer group at 16.08x. So too the forward non-GAAP PEG ratio is 4.30x and highlights how the earnings multiple is meaningfully higher relative to future earnings growth.

It also has a forward EV/Sales ratio of 2.63x that is 60% higher than average in the sector and the forward EV/EBITDA stands at 12.88x, 22.1% higher than the industry average of 10.55x.

Another multiple that’s on the high side is the forward price-to-sales ratio of 2.12x that sits 75.9% higher than the sector’s average of 1.20x.

Adding to the woes for value-oriented investors is the forward price-to-cash-flow ratio of 15.51x that’s about 30% more elevated than what the peer average is.

It’s clear as a result that investors are paying premium prices for Mondelez versus other companies in the same sector.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.