WK Kellogg Co stock has suffered, falling more than 43%, since Kellogg spun out Kellanova, its snacks and other foods-focused division, into a separate, publicly traded entity.
In an update to clients, Bank of America analysts initiated coverage of WK Kellogg (KLG), which holds its traditional cereal brands such as Frosted Flakes and Rice Krispies, with a ‘Neutral’ rating and $11.50 per share price objective, implying 13% potential upside from current levels.
"The spin gives rise to a more levered, no growth entity in a declining category - hardly an appetizing picture, but largely already reflected in current valuation," the analysts wrote.
They noted that KLG’s shares have underperformed due to factors such as the company’s expectation for flat sales through 2026, and $450 million to $500 million of incremental capital spend by 2026, resulting in negative free cash flow and an increase of leverage to over three times.
Analysts at BofA, however, added that the company's iconic brands, including Froot Loops, will receive more focused attention with KLG as a standalone entity, with WK Kellogg maintaining a greater market share of 'kids cereals' than its peers, a demographic that has better fundamentals than 'adult cereals' in what has been an overall declining category.
Shares of WK Kellogg fell 10% to $9.76 in late-afternoon trading on Monday.
Contact Sean at sean@proactiveinvestors.com