Mondelez (NASDAQ: MDLZ) could be the value-and-yield hidden gem you’ve been looking for. I am bullish on Mondelez stock because the company’s management has the wisdom to know when to divest underperforming business units. Sometimes, a company has to slim down in order to focus on more high-conviction areas, and that’s exactly what Mondelez is doing.
Chicago-based Mondelez sells snack food and beverage products in multiple countries. Believe it or not, Mondelez’s foothold in the candy and chewing gum markets spans over 150 countries throughout the world.
Consumer defensive stocks have generally outperformed hyper-growth names in 2022. Yet, this doesn’t mean Mondelez hasn’t had its fair share of challenges. A rocky global economy has forced the company to re-evaluate certain business divisions. Mondelez wisely turned a problem into an opportunity, however, and that’s a great sign for this sometimes-overlooked company.
Mondelez Offers Value, Yield, and Brand Recognition
If you’re concerned about the possibility of a recession in 2023, then you might want to take shelter in brand-based consumer stocks. You might not immediately recognize the Mondelez name, but the company’s products will likely be familiar. Besides, there are features of Mondelez and its stock that sensible investors ought to appreciate.
Here’s some food for thought. Mondelez might not be a household name in the U.S., but chances are excellent that you’ve heard of Oreo cookies, Cadbury and Toblerone chocolates, Sour Patch Kids candy, and Trident chewing gum. These famous brands have been around for decades and aren’t going away anytime soon.
Plus, here’s something for financial traders to chew on – Mondelez offers a healthy 2.18% annual dividend yield, and the company’s P/E ratio of 29.7x isn’t outlandishly high. This isn’t to suggest that MDLZ stock would fly high during a recession, but it might not decline as much as stocks with lofty valuations.
Furthermore, Mondelez’s management is preparing to expand the company’s business model, not only into candy and chewing gum but other areas as well. To that end, the company’s Vision 2030 strategy “aims to generate 90% of revenue in chocolate and biscuits, including baked snacks.” Mondelez views these product categories as having “significant growth opportunities” for the future.
Mondelez to Divest Its Underperforming Gum Business
Mondelez offers a decent dividend and strong shareholder value, but that doesn’t mean the company has been 100% successful in all endeavors. The company’s management clearly knows when to trim its operations, as Mondelez just announced an agreement to divest part of its global gum-manufacturing business.
Specifically, Mondelez will sell its “developed-market” gum business (meaning its gum-manufacturing operations in the U.S., Canada, and Europe) to European gum and confectionery maker Perfetti Van Melle Group. This sale fits with Mondelez’s “portfolio reshaping strategy,” also known as Vision 2030, as the company seeks to focus on its core markets: chocolate, biscuits, and baked snacks.
Perfetti, the maker of Mentos candy, seems perfectly happy to acquire Mondelez’s developed-market gum brands. “Perfetti Van Melle will be an excellent home for the management team and employees of Mondelēz’s gum business in North America and Europe,” explained the company’s chairman, Egidio Perfetti.
Meanwhile, Mondelez’s management is undoubtedly pleased with the deal as the company stands to gain $1.35 billion from it. Even beyond this massive cash infusion, Morningstar analyst Erin Lash is bullish on Mondelez’s deal with Perfetti as “parting ways with a business that has fallen out of favor with consumers should be an advantageous undertaking.”
I agree wholeheartedly, as it makes sense for Mondelez to focus on core business divisions that feature “annual sales growing by mid-single-digit percentages, outpacing the low-single-digit marks that tend to characterize packaged food more broadly.” It’s a step in the right direction as Mondelez embarks boldly on its Vision 2030 strategy while securing $1.35 billion to help the company achieve its long-term objectives.
Is MDLZ Stock a Buy, Sell, or Hold?
Turning to Wall Street, MDLZ has a Strong Buy consensus rating based on 11 Buys and two Holds assigned in the past three months. The average Mondelez price target is $71.54, implying 7.72% upside potential.
Conclusion: Should You Consider Mondelez Stock?
Value hunters and income seekers should seriously consider a long position in MDLZ stock today. It’s also encouraging to know that analysts are generally bullish on the stock. Ultimately, only time will tell whether Mondelez will be successful in its Vision 2030 strategy. The company’s off to a great start with the Perfetti deal, however, and cautious investors can brace for a potentially volatile 2023 with a reasonably safe position in Mondelez stock.
