Mondelez International Inc (MDLZ), General Mills, Inc. (GIS): How Should You Play Them?

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Mondelez International IncMondelez International Inc (NASDAQ:MDLZ) has experienced quite a sweet rise of nearly 21.5% since the beginning of the year. At the time of writing, the stock closed at nearly $31 per share, with a total market cap of $55 billion. Mondelez has been the favorite stock of activist investor Nelson Peltz and MS Global Franchise Fund. Moreover, the company is headed by CEO Irene Rosenfeld, who has nearly 30 years of experience in the F&B industry. Is Mondelez International Inc (NASDAQ:MDLZ) a good pick for investors now? Let’s find out.

First quarter results beat estimates

Mondelez International Inc (NASDAQ:MDLZ) has recently reported its first quarter earnings results. Its net revenue increased by 1% to more than $8.74 billion, beating analysts’ estimates of $8.68 billion. The net income came in at $574 million, or $0.32 per share, 30.4% lower than the EPS last year of $0.46 per share. However, the lower EPS in Q1 2013 was due to a significant gain in the discontinued operations of $0.27 per share in the first quarter last year. Excluding the discontinued operations, the EPS actually gained by more than 68% from $0.19 last year. Irene Rosenfeld, Mondelez’s chairman and CEO, commented,

Our first quarter results were in line with the expectations we outlined earlier this year as we work through some near-term headwinds. Although we’re not satisfied that our top-line growth remained below our long-term target, our results show that we’ve built solid underlying momentum. And I’m confident that we’ll deliver our 2013 commitments as we continue to leverage our advantaged category mix, leading market positions and strong geographic footprint, particularly in emerging markets.

A cash cow with global leading positions

Its biggest playground, the emerging markets, has delivered a significant growth of 9.3% in revenue, with the double-digit gains in China, India and Brazil. For the 2013 outlook, the company estimated that the organic top line growth would be at the low end of 5% -7%, with some near term challenges including lower coffee pricing and capacity constraints in several markets. The operating EPS was expected to be in the range of $1.55 to $1.60 per share. Indeed, Mondelez International Inc (NASDAQ:MDLZ) is really a cash cow with its dominating market position in the emerging markets. It has the number one market share in Biscuits, Chocolate, Powdered Beverages and Candy globally. Its Gum and Coffee product categories both ranked number two in the global market. In 2012, it generated more than $3.9 billion in operating cash flow and more than $2.3 billion in free cash flow.

The cheapest valued in terms of growth

At the current trading price, Mondelez International Inc (NASDAQ:MDLZ) seems to be relatively undervalued. The market values the company at 13.33 times EV/EBITDA and only 1.54 times PEG. Compared to its much slower growth peer, Nestle, Mondelez has a cheaper valuation. Nestle is trading at $71.50 per share, with a total market cap of $228 billion. The market values Nestle at the similar EV multiple at 13.12, but a much higher PEG ratio of 3.91.

In the first quarter 2013, Nestle experienced strong growth. Its sales rose by 5.4% to CHF 21.9 ($23.42) billion with a 4.3% organic growth. The company expected to have organic growth in the range of 5% to 6%. What impresses investors is the overall growth across its geographical segments. While Nestle delivered only 0.9% growth in the developed markets, the business in emerging markets jumped by 8.4%.

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