Citi Resumes Coverage of Kellanova (K) with Neutral Rating

On May 29, Citi analyst Thomas Palmer resumed coverage of Kellanova (NYSE:K) with a Neutral rating and a price target of $83.5.

The analyst highlighted concerns about the company’s pending acquisition, which he views as a critical driver of the current stock valuation. He believes the market has largely priced in a successful acquisition, and if the deal falls through, it could result in significant downside for the stock.

In August 2024, family-owned company Mars Inc. announced its agreement to acquire Kellanova for $83.50 per share, valuing the company at approximately $36 billion. The deal is expected to close in the first half of 2025.

A stack of grocery bags filled with ready-to-eat cereals, frozen waffles, and savory snacks.

Beyond the deal-related risks, Palmer also highlighted operational challenges as Kellanova’s recent earnings disappointed investors and organic sales growth slowed. These headwinds are further worsened by ongoing margin pressure and weaker revenue trends.

The analyst further noted that Kellanova currently trades below the usual valuation levels seen in large U.S. food companies. He believes that the company’s lower valuation indicates investor concerns about the deal execution and limited near-term growth. Interestingly, he estimates that without a successful acquisition, the stock’s fair value might be in the low to mid-$50s range.

Kellanova, formerly known as the Kellogg Company, is a food manufacturing company. It produces and markets snacks and convenience foods, including crackers, toaster pastries, and cereal.

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Disclosure: None.