Is Mondelez a Good Buy After Spin-off From Kraft?

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I do appreciate the importance of stock charts and technical analysis, but I prefer to count on the fundamentals. Here I have picked up Mondelez International which has completed its spin off last month with its parent company Kraft Foods Group upon a distribution of one share of Kraft for every three shares of Mondelez. I believe the company has significant upside potential given its forward P/E of 14.01 and PEG ratio both lower than its peers.

Company Name

Forward P/E

PEG

Mondelez International, Inc. (NASDAQ: MDLZ) 

14.01

1.53

Kellogg Company (NYSE: K)

16.24

2.67

The Hershey Company (NYSE: HSY)

24.48

2.22

Below, I will discuss how Mondelez’s current and forward looking plans have charted its revenue growth and market growth over the long haul with its strong fundamentals.

 Growth in Developing Markets

Mondelez is generating ~44% of its sales from developing geographies and with its popular products such as Oreo and Gum. The acquisition of Cadbury has provided Mondelez with a large market outside of North America, with its expansion across the geographies of Asia Pacific, Latin America and the Middle East and Africa. Given Cadbury’s established brand name and well established supply chain networks, Mondelez is well positioned to benefit from the opportunity with new product launches.

The Cadbury acquisition (2010) has helped the company in market share gain thus significantly increasing its revenue. Cadbury has given a meaningful presence to Mondelez in the emerging markets such as India (in chocolate), Brazil (in gum & chocolate), Mexico (in gum & candy),  South Africa (in chocolate) and Russia (in chocolate). This additional weight has proved its usefulness in terms of a sales increase from 15% to 26% Y/Y. Taking into account the higher consumer spending due to growing personal income in the emerging markets, there is no doubt about further expansion potential.

The launch of Oreo in the Indian market gave a debut sale of ~US$40 million in the very first year which is 1% of the India biscuit market.  As of now, Oreo sales are up by 40% Y/Y since its launch in 2011.

In the Chinese market, Mondelez’s Gum and Candy division delivered 1% growth in 2011. It has launched gum in China and to maximize the revenue and popularity it is driving its force more towards direct consumer marketing. Additionally, the company’s success story continues to drive higher as seen in its growth rate of 68% for its Oreo relaunched in 2009 and is now contributing ~400 million sales which is nearly half of total country sales.

Developed Markets

On the other hand, the challenges of the developed markets have not left Mondelez unaffected and have reflected in its revenues. Its Gum and Candy business was hurt by 1% Y/Y in Europe while its chocolate innovation like ‘our’ snacks and ‘small’ bites were successful and improved the global margin by 6% this year.

Mobile Marketing Initiative

Mondelez has started an initiative called Mobile Futures pairing it with other startups to monetize its mobile brand presence. It has picked up 10 Mondelez brands including Oreo, Trident, Ritz and iDGum to create the new mobile venture in just 90 days. Under this start up, the company will benefit from the combo of startup firms and innovative mobile ideas. It is investing 10% of its global marketing budget to enhance consumer engagement and loyalty.   These kinds of marketing appeals always attract consumer attention. Brands like BMW and PepsiCo are the beginners in such marketing initiatives.

Summing up, I can see that the Mondelez stock offers good opportunity given its strong product portfolio and its global presence. Its newly launched products are already ringing in good revenue figures and hold the potential to grab good market share. 


ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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