(Reuters) - General Mills Inc's (N:GIS) stock could rise to 16 times earnings projections from the current 14 as its acquisition of Blue Buffalo Pet Products Inc starts to create growth, Barron's reported.
General Mills shares, which closed on Friday at $43.41, have fallen 27 percent this year, but investors may be underestimating the value of the company's purchase of pet-food seller Blue Buffalo (O:BUFF), making it an under-the-radar bargain, the newspaper reported.
General Mills' earnings growth has stalled, and its $8 billion price tag for Blue Buffalo in February was viewed by some analysts as too ambitious.
Yet the deal could allow the Lucky Charms and Annie's Macaroni and Cheese maker to expand niche brands into mainstream stores, a payoff investors might not fully appreciate, the paper said.
Its earnings per share should see 7 percent compounded growth in the next four years, Barron's added.
General Mills announced the deal for Blue Buffalo on Feb. 23, expanding into a $30 billion pet-food market in a move seen as countering low demand for the sugary, preservative-filled items with which it is most often associated.
Blue Buffalo's shares traded just under $40 on Friday.
Moody's Investors Service downgraded General Mills to Baa2 on the announcement of the deal.
Jefferies analyst Akshay Jagdale said at the time that "we like the strategic merit, but the price is steep and General Mills will have to work hard to extract value from the deal."