General Mills: More Upside Than Kellogg

| About: General Mills, (GIS)

I was preparing my cereal this morning, as I do every morning (I am a very big grain and fruit fan), when I noticed that we have approximately a dozen different boxes of cereal open on the shelf. We have five people in the household, with clearly varying tastes! I noticed that most of the boxes were from General Mills, with a couple of Kellogg brands mixed in, and started thinking about the differences between the two companies.

In my analysis, I tend to rely heavily on analyst opinion and estimates. I figure they have been studying the stock for a while and probably have a better handle on the numbers than I do. I do look at current news, as well, but I like to lean more on the numbers to provide an objective recommendation.

Kellogg (NYSE: K) is currently trading at about $48, slightly off its 52-week low of $47.88 reached last week. It has a PE of 14.4 and pays a 3.6% dividend. The current analyst rating is a 2.8 (1.0 = Strong Buy, 5.0 = Sell) with a mean target price of $53.19. There are 2 Strong Buy recommendations, 1 Buy, 16 Holds, and 1 Underperform.

The fiscal-year 2012 consensus earnings estimate is $3.36, which is actually 2 cents lower than the actual 2011 earnings of $3.38. The estimate for fiscal-year 2013 is $3.62, 7% higher than 2012.

The stock is down 2% year-to-date, and down 9% from this time last year. The current estimated annual growth rate for the next 5 years is 8.50%, compared to an industry average of 13.20% and a sector average of 13.26%.

General Mills (NYSE: GIS) is trading at approximately $38 per share, 7% off its 52-week high of $41.06, reached in January. It has a PE of 16.3 and pays a 3.2% dividend. Currently analysts rate it a 2.2 (4 Strong Buys, 8 Buys, and 8 Holds) with a mean target price of $42.29..

General Mills' fiscal-year 2012 consensus earnings estimate is 2.54, 2% higher than actual 2011 earnings. Its estimate for fiscal-year 2013 (ending May) is $2.76, 9% higher than 2012.

The stock is down 4% since the beginning of 2012, and up 4% from a year ago. Current 5-year annual growth is estimated at 7.15% vs the S&P at 10.41%.

Kellogg is struggling at a 52-week low. The company's malaise can be attributed to the economic situation in the United States and Europe, where it does have a significant presence, but it does sport an attractive 3.6% yield.

General Mills was just reiterated as a Buy by TheStreet, citing the company's revenue growth, strong gross profit margins and change in net income exceeding the average performance by the Food Products industry.

Eventually, however, I go back to the numbers. With Kellogg's current PE and year-end 2013 earnings estimate, I see a stock price of $52, or upside of 7%. General Mills' PE and earnings estimate leads to a stock price of $45, 18% upside.

My choice of stock, as my choice in cereal, is General Mills.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.