An analyst on Thursday raised estimates for Kellogg Co., saying the earnings beat of rival General Mills Inc. the day before bodes well for the world's largest cereal maker.
Janney analyst Jonathan Feeney said General Mills' "eye-popping margin beat" _ brought on by lower input costs and higher margins from solid pricing _ is likely to be mimicked by other food companies.
"We believe Kellogg is the highest probability candidate," he told investors in a note Thursday.
Feeney raised his target share price for the Battle Creek, Mich.-based company by $3 to $52, implying upside of 9.4 percent over its closing price Wednesday. He also boosted his earnings per share estimate for the second quarter by 4 cents to 84 cents and raised his fiscal 2009 forecast by 6 cents to $3.11.
According to Thomson Reuters, analysts expect the company to earn 82 cents per share in the second quarter, which ended in June. For fiscal 2009, analysts on average predict earnings per share of $3.09.
On Wednesday, Golden Valley, Minn.-based General Mills Inc. reported that its fiscal fourth-quarter profit nearly doubled, beating estimates as sales of top brands like Cheerios rose while consumers continued eating at home. The company offered a 2010 outlook above estimates, saying it expects sales to keep rising and ingredient costs to continue moderating. That marks a reversal from the past few years, when costs for commodities like corn reached record highs.
The company said cereal sales are at highs that have not been seen in years, and the category is expanding while it is gaining market share.
Feeney said Kellogg's cereal portfolio, including brands like Frosted Flakes, is well positioned even if General Mills gained some market share. Kellogg is still the leader, he wrote.
"Given the broad category strength, we believe that regardless of share trends in 2009, Kellogg cereal should show improved volume trends as the year progresses," he wrote.
The company is due to announce its second quarter results on July 30.
Shares of Kellogg fell $1, or 2 percent, to $46.57 in morning trading Thursday.
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