Stock pick: General Mills Inc. (GIS) has fixed its yogurt problem

Lucky Charms and the rest of the cereal division are also growing

Chart showing trailing 12-month stock performance of General Mills Inc.

Blame it on the yogurt. That’s what General Mills (NYSE: GIS) investors were doing for the last couple of years after the company’s foray into the Greek yogurt market went bust.

Hopes were high when the company entered this space with its Yoplait Greek brand in 2011, but thanks to some special ingredient, its dairy product was much thicker than its competitors.’ Consumers didn’t like that and Yoplait sales fell by 10% between 2011 and 2013, while other companies saw yogurt-related profits climb.

While yogurt hasn’t been the only problem facing the Minneapolis-based food business, analysts and investors were happy to hear last year that it was removing that thickness ingredient and making its offering similar to what else was on the market.

Since the middle of last year, when General Mills made the yogurt switch, a number of analysts have upgraded the stock or reiterated buy ratings.

Kenneth Zaslow, an analyst with BMO Capital Markets, says that the company has managed a number of other headwinds well, including higher dairy prices and a general softness in the U.S. package goods industry.

“General Mills appears to be past the worst across many of its businesses, while its financial wherewithal and cost saving programs likely will create a degree of stability in its earnings,” he wrote in a March 20 report.

He points out that its cereal division—it makes Lucky Charms and other brand name breakfast foods—saw a 1% increase in sales growth in its third quarter, while sales of its Greek and regular yogurt are increasing.

It has some other things going for it as well: it’s generating strong operating profit growth in China and Latin America; it’s done a good job of extracting cost savings and it’s buying back shares at a healthy clip. It reduced the number of outstanding shares by 4% last quarter, says Zaslow.

It’s for many of these reasons why, on June 2, Eric Katzman, an analyst with Deutsche Bank, upped his price target on the stock. It’s currently trading at $55 a share, but he thinks it could hit $59—up from his original $56 target—over the next 12 months. The company is nearing Zaslow’s $56 price target, so don’t be surprised if he increases it soon.