Kellogg Company (K) has been in decline since September of 2020. K was trading around $70 in September. The stock is now trading at $57 and change.

Though K rebounded quite nicely after its COVID-19 selloff last March, the stock seems incapable of breaking through its ceiling of $71. However, things could change in 2021 in response to newly-developed consumer habits, the prolonged pandemic, and K’s addition of new products.

Will 2021 finally be the year that K blasts through the $70 mark, reaching $80 or even $90 per share. It just might be.

Why K’s Outlook is so Bullish

K is clearly a value stock as the company sells food ranging from cereal to crackers, cookies, snacks, pastries, frozen items, and more. Food sales soared during the pandemic, yet K has not hit new highs. Rather, K has been trading between $55 and $70 since the pandemic started. K has a forward P/E ratio of merely 14.57, indicating the stock is still undervalued at its trading price of around $57.

K is also held in high regard as the company pays a handsome dividend of 3.93%. This is quite an attractive dividend for a food stock. While the dividend payments of gas, oil, and REIT stocks are in jeopardy due to the pandemic, K’s dividend payment will likely be paid this year and in years to come as its industry is unlikely to be affected by a potentially lengthy economic recession. 

Furthermore, disrupting the food industry’s staples sold in supermarkets across the globe is also unlikely, providing K investors with that much more security. The company has hiked dividend payments every year, going back to 2005 until the pandemic struck this past year.

This $21 billion company sells food to customers across the globe. Though K’s growth is quite slow compared to tech stocks, its adjusted sales for 2019 were up nearly 2% on a year over year basis. Fast forward to 2020, and K sales spiked by 9% in the second quarter and 4.5% in the third quarter. All in all, K’s operating cash flow across the first three-quarters of 2020 was $1.6 billion, resulting in free cash flow of $1.3 billion.

K’s consumer staples are clearly in demand as people shift away from restaurants toward DIY (do it yourself) cooking at home. K’s organic net sales spiked 8.6% in the first half of 2020. This is a stark contrast to the company’s flat organic net sales in 2018. K’s Incogmeato plant-based faux meat products will be launched this year, providing much-needed competition for Impossible Foods and Beyond Meat (BYND). 

The fact that K’s executives are willing to expand their horizons by expanding the company’s vegan market is certainly a positive sign for the company’s evolution. It is also important to note that K owns Morningstar Farms vegan products found in the freezer section at your local grocery store.

The Analysts’ Take on K

Analysts are bullish on K, setting an average price target of $69.79 for the stock. The highest analyst price target is $77, while the lowest is $53. K is currently trading around $57, indicating a potential upside of 20%. Of the 20 analysts who cover K, eleven view it as a Hold, four view it as a Buy, three consider it a Strong Buy, one considers it a Sell, and one views it as a Strong Sell.

K’s POWR Ratings

K is a POWR Ratings winner with an overall grade of B, indicating a Buy rating in our POWR Ratings system. K has B grades in the Growth, Value, Stability, and Quality components of the POWR Ratings. You can find out more about how K grades out in the Momentum and Sentiment components by clicking here.

Of the 83 stocks in the Food Makers industry, K is ranked 15th. All in all, this industry is rated as a B. If you would like to find other top stocks in the Food Makers industry, click here.

Is a K Rebound in Store for 2021?

K’s fate in 2021 depends on the success of the company’s Incogmeato rollout as well as the overarching battle against coronavirus. If the vaccines do not prove effective against coronavirus variants, or if most of the population is not vaccinated within the first half of the year, people will continue to eat at home instead of going to restaurants. 

However, even if society completely reopens, it will take some time for consumers to break from the habits cemented in 2020, meaning K products’ consumption will likely continue to be elevated for the year ahead and possibly for years to come.

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K shares were trading at $57.43 per share on Tuesday morning, down $0.31 (-0.54%). Year-to-date, K has declined -7.71%, versus a 4.37% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More...

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