Kellogg (K) shares rose nearly 2% on June 21, after the food giant announced a breakup plan that would result in three standalone public food companies. The stock is up more than 8% year-to-date, bucking the broader equity market sell-off. Founded in 1906 and based in Michigan, Kellogg has developed a large portfolio of food brands serving categories such as breakfast cereal, snacks, and plant-based meat products.
How is the Kellogg Breakup Going to Work?
Kellogg plans to split its snacks, cereal, and plant-based food units into separate companies. The snacks unit is Kellogg’s largest business, generating sales of $11.4 billion in 2021. The stand-alone snack company would also house Kellogg’s international cereal business.
The cereal unit would largely consist of Kellogg’s North American operations, which generated revenue of $2.4 billion in 2021. The plant-based food business would mostly consist of the MorningStar Farms brand. Kellogg is weighing its options for the plant-based food unit, including a potential sale.
When is the Kellogg Breakup Going to Happen?
Kellogg intends to carry out the breakup in a tax-free manner and plans to complete the split by the end of 2023. At this time, the company has not unveiled the complete leadership teams for the units. It has only provided a peek into the snacks unit leadership, stating that the current CEO, Steve Cahillane, would be in charge of that business.
What is the Point of the Kellogg Breakup?
Kellogg believes that the businesses would have significant potential as standalone companies. Further, it explains that the businesses would have more flexibility to better direct resources to their distinct strategic priorities. As a result, each business is expected to generate more value for investors.
Wall Street’s Take
Following Kellogg’s announcement of the breakup plan, Stifel Nicolaus analyst Christopher Growe reiterated a Hold rating on Kellogg stock. Growe, whose ratings have turned out to be profitable 65% of the time, believes that the split is a positive for the stock.
The stock has a Hold consensus rating based on two Buys, eight Holds, and three Sells. The average Kellogg price target of $71.64 implies 4% upside potential from current levels.
Smart Score Rating
Kellogg scores a 9 out of 10 from TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.
Key Takeaway for Investors
A notable potential outcome of the planned Kellogg split is that it would give investors another pure-play plant-based food stock, in addition to Beyond Meat (BYND). The global plant-based meat market is forecast to grow to $24.8 billion by 2030, from $5.06 billion in 2021. Furthermore, decision-making can be complex and slow in a large conglomerate. Therefore, the breakup may bring more agility to Kellogg’s separate units.