Kellogg’s stock now trades at its highest valuation this generation. Almost always, this has been a business that trades in the range of 15-16x earnings and offers a starting dividend yield over 3%. Today, at trades at $78 per share, offers a 2.5% dividend yield, and offers a starting P/E ratio of 21x earnings. This a business only growing earnings per share in the 4 to 6% range.
For the next five years, Kellogg shareholders will likely realize the following: 5% earnings growth, 5% dividends growth, and a P/E reversion to the 17x earnings range.
This means that earnings of $3.60 per share will grow to around $4.60 per share by around 2021. If the P/E ratio comes down from 21x earnings to 17x earnings, for a nearly 20% expected headwind, then this stock ought to trade at $78 per share five years from now. Right now, the price is … Read the rest of this article!