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By Erin Lash, CFA | 06-23-2015 10:00 AM

Mondelez Has 'Sweet' Competitive Positioning

Slimming bloated operations and reinvesting in its solid portfolio of brands will drive more balanced top-line growth and profit improvement for the packaged-goods firm.

Erin Lash: For investors looking to gain exposure to the packaged-food space, we'd suggest keeping an eye on wide-moat Mondelez (MDLZ) and its sweet competitive positioning. While the firm has struggled at the hand of intense competitive pressures, challenging category dynamics, and some self-inflicted missteps over the past few years, we think its wide moat positions it well for the long term.

More specifically, efforts to reinvest behind its solid portfolio of brands as well as its increased focus on the global biscuit and confectionary aisle, which will account for about 85% of sales following the split of its coffee operations later this year, should lead to around 4% annual sales growth, longer term.

Further, efforts to extract costs from its bloated operations as well as reinvest some of those savings to support its brand intangible asset should drive further margin improvement to north of 16%, [which is more comparable with other industry peers], by the end of our 10-year explicit forecast.

While shares have traded up more recently, we think patient long-term investors will ultimately be rewarded by the firm's efforts to drive more balanced top-line growth and profit improvement longer term. We would suggest building a position in the name at a slightly larger discount to our fair value estimate. 

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