Morningstar

Morningstar, Inc.

Equity Bottom-Up

Post has a unique portfolio of businesses. As the cereal category has been in secular decline, the firm diversified its revenue base by entering the protein-based categories that were driving the legacy business’ deterioration, such as eggs and protein-based nutritional products. While these actions have stabilized the top line, we believe a competitive edge remains elusive. The cereal business (39% of revenue) has been declining as consumers have shifted away from processed, high-sugar…

We don’t plan making material changes to our $92 fair value estimate for no-moat Post after mixed second-quarter results. Pro forma sales were even with a year ago, but the adjusted EBITDA margin expanded 170 basis points to 21.5%. Even after accounting for the mid-single-digit decline in shares, we suggest investors await a more attractive opportunity before building a position. For those interested in the package food aisle, we highlight wide-moat Kellogg as a more compelling opportunity…

We’re modestly lowering our fair value estimate for no-moat Post to $92 from $93, driven by lower cereal revenue, partially offset by higher margins. Our consolidated revenue growth assumption falls to 2% from 3% as efforts to stabilize the cereal category have fallen short. We are therefore reducing our cereal expectations from modest growth to 0.5% declines in the U.S. and 2% declines internationally, in line with category trends. Given the firm’s lack of a competitive advantage, we think it…

<p>Despite diversifying acquisitions, Post is exposed to a declining cereal category defined by larger competitors, and it lacks sufficient noncereal differentiated products that can deliver a sustainable competitive edge. Cereal has faded from the breakfast menu as the culinary zeitgeist shifts in favor of convenient, health-oriented foods. Even after its 2015 acquisition of MOM Brands, Post remains a distant third behind Kellogg and General Mills, which can leverage their in-aisle scale to keep…</p>

United States

Post Holdings Inc. is a food company. The Company manufactures, distributes, and markets a wide range of ready-to-eat cereal products.

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