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Kellogg will find it difficult to pass through inflation from here, UBS says


Shares of Kellogg may come under pressure as the company finds it difficult to pass on rising prices from here, according to UBS. Analyst Cody Ross downgraded shares of Kellogg to neutral from buy, saying in a Thursday note that the food manufacturer faces “some of the highest inflationary pressure” within the firm’s coverage. “Kellogg’s stock is up the second most in our coverage YTD, but we are concerned that the company is going to experience a significant amount of inflation over the [next 12 months] and will likely have difficulty passing through as much price going forward in light of WMT’s/TGT’s/KR’s recent commentary to keep costs down in food and beverage categories,” Ross wrote. Food manufacturers have been pressured by soaring commodities costs, which has pushed up the price of ingredients like grains and the cost of transporting finished products. Bank of America cut Kellogg’s 12-month price target to $74 from $81. The new price target is slightly above where shares closed Wednesday. The stock is up nearly 13% this year. The analyst said Kellogg could lose market share as the gap between name brands and private labels grows. A recent analysis by the firm showed that Kellogg’s price gaps to private label are increasing in eight of its top 10 categories. At the same time, the analyst finds details in Kellogg’s plans to spin off its North America cereal and plant-based meat businesses too “scarce” to make a determination on the stock outlook. “Given the company does not plan to provide an update for another ~12 months, we believe the investment case is more murky today and therefore believe it is best to move to the sideline,” read the note. Shares declined nearly 2% during Thursday’s premarket trading. –CNBC’s Michael Bloom contributed to this report.

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