General Mills (NYSE:GIS) is due to report its 2015 first-quarter earnings on Wednesday before the market opens. So far this year, it's matching the return of the market. So you have to wonder: Is now a good time to buy the stock? Let's take a look.

Source: YCharts.

The Annie's acquisition could be really good
While it sort of flew under the radar, General Mills' announcement last week that it has agreed to acquire Annie's (UNKNOWN:BNNY.DL) in a deal valued at $820 million is a smooth move. Adding this leader in natural and organic foods to its existing brand portfolio will help General Mills reach new customers and grab more shelf space. Annie's is a popular brand among organic consumers and is big in retailers like Whole Foods.

While Annie's total revenue equals about 1% of General Mills top line, it would immediately add around $200 million of sales to General Mills' existing $330 million organic division. That's more than a 50% increase. Overall, it's a nice acquisition from a savvy brand acquirer. If you needed another reason to consider General Mills, this is it. The Annie's transaction is expected to close this year.

The valuation makes sense
General Mills sports a P/E ratio around 19, which compares favorably to competitors like Danone and Nestle, which are both over 21, according to their Yahoo! Finance pages. Price to sales is another number to keep an eye on. Again, General Mills looks attractive. 

Company Market Cap  P/E P/S Operating Margin
General Mills  $32.3 billion  19.4 1.8   16.2%
Danone  $42.2 billion  21.5  1.6   11.8% 
Nestle  $242  billion  21.6 2.5  15.5%

Source: Yahoo! Finance.

So at first glance, all the numbers jive and General Mills is priced appropriately. In fact, its operating margin is nice and healthy, especially compared to its competitors. And that's a good thing because like Warren Buffett, I would rather pay a fair price for a great business than a great price for a fair business.

But my favorite way to value a company is predicated on Michael Mauboussin's Expectations Investing. Here, I'm looking to figure what growth rate a business needs to justify its current price. So digging deeper, it looks like General Mills produces around $2 billion in free cash flow. Once I crunch all the numbers, it needs to grow at 8% for five years before settling into 4% for the next five years, with a 3% terminal rate for today's price to make sense.

With the strength of its six priority platforms and its ability to connect to the Chinese consumer, I think it can hit that target. And let's not forget management is laser-focused on its four key consumer groups: millennials, folks over 55, the growing middle class in emerging markets, and multicultural U.S. families. Add it all up, and I think today's price is more than fair.


What to expect on Wednesday
According to Yahoo! Finance, analysts are expecting around $0.69 in per-share earnings on about $4.4 billion in sales. Last year, General Mills earned $0.70 on $4.37 billion in sales in the quarter. So analysts are not looking for big increases here.

And that's to be expected. It doesn't get more stable, than cereal, yogurt, and oatmeal. As long as management doesn't have any major operational issues or wacky input volatility, sales and profits should be mostly in-line. Again, this is why you buy a company like General Mills, to eliminate all those nasty surprises.

Foolish final words
So with the P/E and P/S ratios largely in line with its competitors, a solid operating margin, and a reasonable expected growth rate to justify its current price, I think now is a fine time to add General Mills stock to your portfolio. The Annie's purchase could also be a nice catalyst to push the stock up.

But frankly, that's not why you buy General Mills. You buy it because it's a bellwether consumer foods company that has steady, predictable profits and cash flows. General Mills may be a perfect counterbalance for some of the other more volatile stocks in your portfolio. Remember -- slow and steady wins the race.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Wade Michels has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Annie's and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.