Analysts applaud Kellogg’s breakup, forecast competition
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The Kellogg Companyâs (NYSE:K) decision to split up its lagging cereal business from its surging snacks operation is a welcome move, according to initial analyst reactions.
For example, Stifel analyst Christopher Growe indicated the split allows growth in snacks to be appreciated while the cereal business seeks to shore up its flagging sales. Meanwhile, Growe expects the spinoff of the plant-based foods subsidiary makes it more flexible in terms of strategic repositioning and even a possible sale of the business. It is worth noting that Kelloggâs (K) plant-based food entity is profitable as compared to the consistent losses marked by peers like Beyond Meat (BYND).
âThe breakup will allow each entity to focus on their distinct strategic priorities with financial targets appropriate for the profile of each business,â he wrote. âWe believe the announcement is a positive for the stock.â
UBS analyst Cody Ross largely reinforced this view, advising that a higher multiple is appropriate for the snacks business once it operates as a standalone operation. Mondelez (MDLZ), Utz (UTZ), and PepsiCo (PEP) were pinpointed as close comparisons for the prospective multiple that could be afforded to the newly-formed company. He added that he expects the standalone business to compete well in this market as an independent entity allows for a greater focus on the strong segment. 
The remaining cereal business is anticipated to court a multiple more in line with key competitors like Post Holdings (POST) and Conagra Brands (CAG).
To be sure, Ross was more skeptical of Tuesdayâs premarket pop for shares.
âWe suspect that some of [the gains] may be due to a short squeeze,â he advised. âThe stock has above-average short interest in our coverage and recent investor conversations indicated sentiment had turned negative given the potential incremental inflation on the horizon for Kelloggâs (K) and its inability to pass through price at the same pace it has in the past year.â
Shortly after Tuesdayâs market open an over 8% pop in shares during pre-market hours moderated to about a 2% gain.
Read more on CEO Steve Cahillane's expectations for the separate businesses.