Morningstar has issued a ‘BUY’ recommendation for Mondelez International Inc. (NASDAQ: MDLZ) with a fair value estimate of $75 per share, indicating significant upside potential from its current trading price of $62.17. MorningStar Research report delves into Mondelez's performance, financial outlook, economic moat, profit drivers, and potential risks, providing actionable insights for investors looking to capitalize on the company’s growth strategy in the snacking and confectionery markets.

Overview of Mondelez’s Business Strategy and Outlook

Balanced Sales and Profit Growth: Since CEO Dirk Van de Put took the helm, Mondelez has focused on driving balanced sales and profit growth through strategic initiatives.

Distribution Expansion: The company aims to extend the distribution of its products into more channels, targeting both local and global markets.
Investment in Brands: Mondelez continues to invest heavily in its brands, including Oreo, Chips Ahoy, and Cadbury, to ensure market leadership in key categories.
Innovation and Agility: The company is committed to bringing consumer-focused innovations to market quickly, with a focus on local tastes and preferences.
Sales Growth Target: Mondelez targets long-term organic sales growth of 3%-5%, driven by higher prices and increased volume.
These strategic initiatives aim to solidify Mondelez’s position as a global leader in the snack industry.

Financial Highlights and Profit Drivers

Organic Sales Growth: Mondelez reported a 5.2% increase in organic sales during its fourth quarter, following nearly 10% growth in the previous year.

Adjusted Gross Margin: The company's adjusted gross margin declined by 650 basis points to 31.5%, primarily due to cocoa inflation.
2025 Earnings Outlook: Mondelez expects a 10% decline in adjusted earnings per share for fiscal 2025, reflecting ongoing cost pressures.
Investment in R&D: Management plans to allocate nearly 7% of annual sales (approximately $3 billion) to research, development, and marketing over the next decade.
These investments aim to strengthen Mondelez’s brand equity and drive long-term profitability.

Economic Moat: A Strong Competitive Advantage

Wide Economic Moat: Morningstar assigns Mondelez a wide economic moat due to its strong brand portfolio, extensive global distribution network, and economies of scale.

Leading Market Share: Mondelez holds the top spot in the global sweet biscuit category with a 16% market share, outpacing competitors like Ferrero and private labels.
Cost Advantage: The company benefits from lower unit and distribution costs, driven by its scale and global presence.
Retail Relationships: Mondelez’s strong relationships with retailers enable it to drive category growth and secure prominent shelf space for its brands.
This competitive positioning allows Mondelez to maintain high barriers to entry, ensuring sustained market leadership.

Risks and Uncertainty

Inflationary Pressures: Rising commodity costs, particularly cocoa, sugar, and dairy, pose a risk to Mondelez’s margins.

Cocoa Costs: While cocoa prices have moderated from recent peaks, they remain more than double the level of two years ago.
Consumer Behavior: The adoption of anti-obesity drugs could impact demand for Mondelez’s indulgent snacks, particularly in North America.
Economic Headwinds: High inflation and interest rates may constrain consumer spending, leading to a potential decline in volume.
Despite these risks, Mondelez’s focus on innovation and cost efficiencies is expected to mitigate potential impacts on profitability.

Technical Analysis: Key Levels and Targets

Fair Value Estimate: Morningstar’s fair value estimate for Mondelez stands at $75 per share, implying an upside of approximately 20.7% from the current price of $62.17.

Support Levels: Key support levels for Mondelez are identified at $58 and $60.
Resistance Levels: The stock faces resistance at $65 and $68. A breakout above these levels could signal a bullish trend.
Price-to-Fair Value Ratio: The current price-to-fair value ratio is 0.83, indicating that the stock is undervalued relative to its intrinsic worth.
These technical insights suggest potential opportunities for both short-term traders and long-term investors.

Comparative Analysis with Key Competitors

General Mills (GIS):

Fair Value: $71
Last Close: $59.19
Market Cap: $33.63 billion
Price/Fair Value Ratio: 0.86
The Hershey Co. (HSY):

Fair Value: $210
Last Close: $166.10
Market Cap: $34.99 billion
Price/Fair Value Ratio: 0.82
Compared to its peers, Mondelez appears attractively valued with a strong competitive moat, making it a compelling investment option.

Investment Outlook and Bottomline for Investors

Morningstar maintains a ‘BUY’ rating on Mondelez International, with a fair value estimate of $75 per share. The company’s focus on brand investment, innovation, and cost efficiencies is expected to drive long-term growth despite near-term challenges. With a wide economic moat, strong market share, and undervaluation relative to its intrinsic worth, Mondelez presents a promising investment opportunity.

Disclaimer: Investors are advised to conduct their own due diligence and consider their risk tolerance before making investment decisions. This report is for informational purposes only and does not constitute investment advice.