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Kellogg (K ): Maintains 3 STARS (hold)
Analyst: Richard Joy

Kellogg posted third-quarter earnings per share 59 cents, vs. 56 cents, 4 cents better than our estimate. Net sales rose 7.2% on 1.8% higher volumes, a 3% price/mix improvement and a 2.4% currency gain. Despite the better than expected third quarter, our 2004 earnings-per-share estimate remains $2.14, due to higher tax rate and marketing spending assumptions for the fourth quarter. Given strong brand momentum and higher pricing, we are raising our 2005 earnings-per-share estimate by 2 cents to $2.35, and our target price by $3 to $45. We think earnings-per-share visibility and improving returns make Kellogg worth holding, but we see upside limited by its valuation premium to peers.
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