Why Did Deutsche Bank Just Downgrade Mondelez?

• Shares of Mondelez International Inc (NASDAQ: MDLZ) have declined 4.12 percent over the last three months, while declining more than 3 percent in morning trade on January 7.
• Deutsche Bank’s Eric Katzman has downgraded the rating on the company from Buy to Hold, while lowering the price target from $49 to $48.
• Although an improving free cash flow outlook and “activist influence” are likely to limit downside, Katzman expects the stock to remain range bound in the intermediate term.

Analyst Eric Katzman mentioned that although the company is “appropriately focused on balanced LT goals and has among the top growth prospects vs. peers, a combination of (1) EM weakness, (2) currency headwinds, (3) concern over JV profits and (4) high valuation pushes us to the sidelines.”

Given that 40 percent of Mondelez’s sales come from emerging economies, Katzman expressed concern regarding the core volumes in the BRIC markets not rebounding, despite the logical A&P investment by CEO Rosenfeld.

“We still have faith in robust cost savings but also note JDE coffee profits appear to be at risk,” Katzman said.

On the other hand, Katzman expressed optimism regarding management’s following balanced goals in 2015, especially given Mondelez’s “impressive” long term potential in the snacks & confection category, viewing this approach as the best option for long term value creation.