Moskow sees growth ahead for Mondelez

Moskow sees growth ahead for Mondelez

NEW YORK — While shares of Mondelez International, Inc. have trended lower over the past two months because of tightening profit margins, investors should heed positive trends at the Chicago-based snacks manufacturer, said Robert Moskow, an analyst with Credit Suisse, New York.

In an Oct. 21 investment report, Mr. Moskow said the recent price decline represents “an attractive entry point for investors with a 12-month horizon because sales growth remains robust, the company has retained market share gains compared to pre-COVID levels, and the gross  margin pressure has not impacted EPS guidance.”

“Sentiment on Mondelez stock has soured ahead of third-quarter earnings because management warned of incremental gross margin pressure in September and also perhaps because Nielsen data indicate weaker market share trends in the US and Europe,” Mr. Moskow said.

Mondelez will be announcing third-quarter financial results Nov. 1.

Based on strong sales trends, Credit Suisse is raising its revenue growth forecasts for 2021 and 2022 to 4.9% and 4%, respectively. Sales will be lifted by an inflationary environment, Mr. Moskow said. Credit Suisse is cutting its forecast of 2021 earnings per share on the common stock to $2.87 from $2.89 and for 2022 to $3.12 from $3.11.

Supply chain interruptions and labor shortages are expected to contribute to the tightening of margins, Mr. Moskow said. Still, gross profits are expected to climb, he said.

The current price/earnings ratio of 20 times forward earnings is in line with the three-year average for Mondelez as is the company’s 25% premium to the valuation of US food peers, Mr. Moskow said.

“We believe the valuation multiple can expand to 22 times as the company proves the durability of its top-tier growth rate and pricing power to offset cost inflation,” he said.

For 2022, while Credit Suisse expects inflationary headwinds to persist it also anticipates sales strength in emerging markets.

“We expect double-digit growth in emerging markets to persist over the next several quarters because pricing is moving higher, and Mondelez’ multinational peers (like Nestle and PepsiCo) have been reporting strong results and raising their outlooks,” Mr. Moskow said. “We expect strong growth from acquired emerging brands and resumption of channel expansion strategies in emerging markets (which were delayed during COVID) to drive volume growth.”