y multiple have both improved in 1997, which is mainly due to the acquisition of the Lender’s Bagel business from Kraft Foods Inc. on December 16, 1996. Investor:INVESTOR19971996PeerEPS1.321.25P/E36.5 26.2 27.3Dividend Payout0.650.88% of Earnings Retained .3405 .3527Dividend Yield 1.75% 3.36% 2.09%Book Value Per Share 2.405 4.112In 1997 Kellogg’s earnings per share has increased from 1.25 in 1996 to 1.32 in 1997 a .07 difference. The P/E ratio has increased 10.3x making Kellogg’s stock worth 36.5 times earnings. From a value standpoint Kellogg’s stock looks overvalued with a P/E ratio 9.2 times larger than the industry average of 27.3. The dividend payout has decreased in 1997 due to a decrease in dividends per common share from 1.1 in 1996 to .87 in 1997. The dividend yield has decreased from 3.36% in 1996 to 1.75% in 1997 moving it lower than the industry average of 2.09%.Overall Rating:In my analysis Kellogg’s Corporation appears to be a solid company but I would not give it a BUY rating. I would rate Kellogg’s as a HOLD because even though earnings have consistently increased, when compared to industry standards Kellogg’s seems to be merely average. Kellogg’s is improving in increasing its efficiency but its operating cycle is still behind the industry average due mainly to a slower inventory turnover than peers. Kellogg’s is also a very debt heavy company with not much liquidity considering that they have a negative net working capital. Their high leverage also illustrates that they are debt heavy, especially when compared to peers.Formulas:Liquidity:19971996Current ratioCurrent assets1,467,700,0001,528,600,000Current liabilities1,657,300,0002,199,000,0000.8855970550.695134152acid-test ratiocash equivalents173,200,000243,800,000plus securities$0 $0 plus rece...
