Mondelez International (MDLZ) – Closing Short Position – up 3% vs. S&P down 9%
We put Mondelez International (MDLZ: $51/share) in the Danger Zone on April 8, 2019. At the time, MDLZ received an Unattractive rating. Our short thesis noted the firm’s declining economic earnings, poor corporate governance, low profitability vs. peers, and overvalued stock price.
This Danger Zone report, along with all of our research, utilizes our “novel dataset”[1] of footnotes disclosures to get the truth about core earnings, as shown in the Harvard Business School and MIT Sloan paper, “Core Earnings: New Data and Evidence.”
During the 357-day holding period, MDLZ underperformed as a short position, rising 3% compared to a 9% drop for the S&P 500.
MDLZ’s fundamentals have slightly improved since our original report. Its return on invested capital (ROIC) improved from 5% at the time of our report to 6% in 2019 and NOPAT margin increased from 14% to 15% over the same time. Improved fundamentals, combined with a decreased valuation since the market crash began in mid-February, mean MDLZ now earns an Attractive rating (from Neutral). MDLZ no longer presents the same risk/reward as when we placed it in the Danger Zone and as a result, we are closing this short position.
Figure 1: MDLZ vs. S&P 500 – Price Return – Unsuccessful Short Call
Sources: New Constructs, LLC and company filings
Note: Gain/Decline performance analysis excludes transaction costs and dividends.
This article originally published on March 31, 2020.
Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.
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[1] In Core Earnings: New Data & Evidence, professors at Harvard Business School (HBS) & MIT Sloan empirically show that data is superior to IBES “Street Earnings”, owned by Blackstone (BX) and Thomson Reuters (TRI), and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).