Mondelez (MDLZ) Sum Of The Parts Shows 23% Upside - RBC

RBC analyst, David Palmer, believes Mondelez' (NASDAQ: MDLZ) equity positions in JDE and KGM may be under-appreciated by the street, particularly after yesterday's announcement that Pinnacle Foods CEO Bob Gamgort will be joining Mondelez' JV partner JAB Holdings as KGM's new CEO. This announcement brought the analyst to revisit his sum-of-the-parts valuation which now reflects updated assumptions regarding Mondelez' global joint ventures: 1) Jacobs Douwe Edgberts (JDE), 2) Keurig Green Mountain (KGM) and 3) Dongsuh Foods in Korea. Based on the new assumptions the SOTP provides 1-year valuation objectives for standalone MDLZ and its JV's of $44/shr and $5/shr, respectively.

A premium valuation is justified for Standalone MDLZ' given superior organic top and bottom-line trends. Yhr standalone MDLZ multiple of 23.3x '17e EPS (a 2 turn premium to Big Food and 1 turn premium to MDLZ' current 22.5x NTM P/E) is warranted given: 1) Superior visibility to doubledigit FX-neutral EPS growth, 2) Peer-leading LT organic revenue growth of 3–4% versus 0–2% Big Food average, and 3) M&A/activist upside potential.

The additional 1/2 turn premium is justified given significant upside in MDLZ' partnership with JAB Holding Co. An additional 1/2 turn for total MDLZ inclusive of JV's (23.8x '17e EPS) is more than warranted due to: 1) EPS upside from potential procurement and marketing synergies between JDE and KGM today, 2) Upside prospects assuming a future JDE and KGM combination/IPO (net of tax), and 3) further prospective global coffee consolidation by JAB and resultant synergies (especially given Bob Gamgort's involvement as new KGM CEO).

The $49 PT equates to 23.3x 2017e EPS for standalone MDLZ and a blended 23.8x for the total company.

Gamgort has had a distinguished career in consumer products including a period of significant value creation at Pinnacle Foods.

For an analyst ratings summary and ratings history on Mondelez International click here. For more ratings news on Mondelez International click here.

Shares of Mondelez International closed at $39.94 yesterday.

You May Also Be Interested In

• Mondelēz International’s Global R&D Team Opens Applications for Second CoLab Tech Program
• MarineMax (HZO) PT Lowered to $35 at Stifel
• Mondelēz International’s Global R&D Team Opens Applications for Second CoLab Tech Program