The shares of General Mills (GIS) are higher today, thanks to some positive analyst attention. Specifically, Guggenheim lifted its price target on the stock to a Street-high $65 from $58, and hiked its earnings estimates for the next three fiscal years, following the cereal maker’s investor day on Monday. What’s more, now may be time to buy short-term call options on GIS, if recent history is any indicator.
General Mills shares were last seen 2.4% higher to trade at $54.59, set for their highest close since February 2018. The security has already rallied more than 40% year-to-date, with recent pullbacks contained by the $48-$49 neighborhood — a former area of resistance, and where GIS landed after an April bull gap.
Despite racking up serious gains in the first half of 2019, GIS remains plagued by pessimism. Just four of 13 analysts offer up “buy” or better endorsements, and the consenseus 12-month price target of $53.06 now represents a discount to current trading levels. Another dose of upbeat analyst attention in the form of upgrades and price-target hikes could add fuel to the stock’s fire.
A short squeeze could also propel GIS to new heights. Short interest has been waning over the past month, but still represents nearly a week’s worth of pent-up buying demand, at the shares’ average daily trading volume.
Meanwhile, GIS’ short-term options are attractively priced. The security’s Schaeffer’s Volatility Index (SVI) of 19% is in just the fifth percentile of its annual range, suggesting near-term option premiums are pricing in relatively low volatility expectations for the stock.
Over the past five years, there have been just four other times where GIS was within striking distance of a new 52-week high while simultaneously sporting an SVI in the bottom 20% of its annual range. After those signals, GIS was higher one month later 75% of the time, averaging a healthy gain of 5.26%, per data from Schaeffer’s Senior Quantitative Analyst Rocky White. From the equity’s current perch, a similar pop would put GIS around $57.46.
Traders expecting more upside for the shares should consider purchasing near-term calls. GIS’ August 52.50 call was last asked at $2.75, meaning buyers will profit the higher the underlying stock moves above $55.25 (strike plus premium paid) by the close on Friday, Aug. 16, when the back-month options expire. From GIS’ current price, it would take a bump of just 1.2% to achieve that breakeven.