RBC upgrades this packaged foods stock, sees rebound from year-to-date losses

RBC Capital Markets upgraded General Mills (GIS) to Outperform from Sector Perform, citing a bright outlook driven by the company's FY26 EPS guidance. Analyst Nik Modi highlighted that the guidance incorporates necessary reinvestment for topline growth and provides cushion to exceed earnings targets, despite mixed Q4 results and a lowered price target of $63. This upgrade comes as GIS shares have significantly underperformed, falling 21% year-to-date in 2025, leading to an attractive valuation at its widest discount to peers in five years, with management also acknowledging the need for further price adjustments.

Analysis

RBC Capital Markets has issued a contrarian 'outperform' rating on General Mills (GIS), upgrading it from 'sector perform' despite the company reporting mixed fiscal fourth-quarter results. The upgrade's rationale is forward-looking, focusing on the FY'26 earnings per share (EPS) guidance, which RBC believes strategically embeds sufficient reinvestment to catalyze topline growth while retaining flexibility to exceed earnings targets in a challenging consumer environment. This optimistic view is presented alongside a lowered price target of $63, which still implies a significant 24% upside from current levels. The stock's valuation is a key component of the bull thesis; GIS shares have fallen 21% in 2025, underperforming the Consumer Staples Select Sector SPDR Fund (XLP) by approximately 23% and leading to a valuation discount against its peers that is the widest in five years. Management's acknowledgment of the need for further price reductions is also viewed as a positive signal. However, RBC's position is notably distinct from the broader market consensus, where 17 of 22 covering analysts maintain a 'hold' rating.

Key Decisions for Investors

• Investors with a higher risk tolerance could view the RBC upgrade as a signal to initiate or add to positions, capitalizing on the stock's significant price underperformance and five-year low valuation relative to peers.
• It is crucial to monitor upcoming quarterly reports for evidence that management's reinvestment strategy is successfully translating into topline growth and that planned price reductions are stimulating consumer demand.
• Given that the majority of analysts remain on the sidelines, more cautious investors may prefer to wait for confirmation of a fundamental turnaround before committing capital, treating the RBC call as an early, non-consensus indicator.