After rating upgrade, Kellogg stock poised to gain further

Shares of convenience food provider Kellogg Company (NYSE: K) made strong gains on Friday and traded close to their recent peak, after Goldman Sachs issued a bullish statement on the company.

Impressed by its positive momentum, the brokerage upgraded the stock to buy from neutral and raised the target price to $72. The shares closed the session up 2%. According to Goldman, Kellogg’s profit margins will expand significantly on the back of solid organic sales growth.

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The analyst also referred to Kellogg as the ‘the most compelling value left in snacks,’ citing the growth prospects of the business. Going by the current trend, it is likely that other brokerages would follow suit in the coming days and upgrade their ratings on the stock.

Kellogg got a major boost after its stronger-than-expected second-quarter results triggered a stock rally a few weeks ago. Though sales increased 3% to $3.5 billion, the bottom line slipped due to charges related to the ongoing restructuring program and high input costs. Earnings dropped 13% to $0.99 per share.

The recent divestiture of under-performing categories like cookies, fruit snacks, pie crusts, and ice cream cones is seen as an effective strategy that would help the company streamline its business. Betting on the growing demand for plant-based fast-food, Kellogg recently introduced ‘Incogmeato’, its vegan-meat range of burgers, tenders and chicken nuggets.

Also read: Kellogg Q2 2019 Earnings Conference Call Transcript

The rating upgrade comes at a time when the majority of analysts covering Kellogg recommend hold and maintain relatively low price targets. Last month, the stock climbed to the highest level in nearly a year. It has gained 13% since the beginning of the year.

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