WK Kellogg Earnings: Shares Still a Bargain as Focus on Extracting Inefficiencies Remains

Since its last earnings report in mid-February, shares of no-moat WK Kellogg have climbed nearly 70% as investors have increasingly bought into the merits of the firm's strategic agenda, which is anchored in lifting profits through supply chain modernization initiatives. Such efforts continued in the first quarter, surfacing through 130 basis points of adjusted EBITDA margin expansion to 10.6% on stepped-up productivity gains. This improvement bolsters our confidence in the firm's ability to buoy margins by 500 basis points over the next few years as it unlocks further efficiencies. We intend to maintain our long-term outlook for the business (flat average sales growth and mid-teens EBITDA margins) and our $27 per share fair value estimate (outside of a modest bump for time value).