Robert Moskow upgraded Kellogg from Neutral to Outperform with a price target lifted from $68 to $78.
Kellogg's management deserves credit for shifting its business away from declining breakfast cereal to become the second-largest global snacks company at 50% of total sales, Moskow wrote in the note. An estimated 55% of all brands in the U.S. are growing at a "healthy rate" while the company's overall growth rate is trending north of 2% which is notably above its food peers.
Kellogg should also benefit from acquisitions such as RXBAR and the divestiture of U.S. cookies, fruit snacks and cones. Coupled with other similar moves in the international market, Kellogg boosted the growth profile of its portfolio by 130 basis points.
Meanwhile, Moskow said Kellogg's gross margins and operating margins have "plummeted" over the past few years and are sitting well below its peers, but a deep-dive analysis of Kellogg's brands, categories and peers, shows plenty of opportunity for improvement.
Operating leverage should help Kellogg's 2020 performance as the pace of investments in its business will slow. At the same time, the company should see favorable impacts from his investments.
Kellogg's stock traded higher by 1.7% to $69.13 at time of publication.