You’ve probably seen the tickers flashing red for General Mills (GIS) lately. The stock has been a bit of a punching bag in 2025 and early 2026. If you just look at the surface—the 7% revenue drops or the 45% plunge in diluted EPS reported in late 2025—it looks like a disaster. But for the "gurus" of the Earnings Power Value (EPV) method, this is exactly where things get interesting.
EPV isn’t about chasing the next shiny growth story. It’s the opposite. It’s a cold, hard look at what a company is worth if it never grew another inch. Developed by Columbia Professor Bruce Greenwald, this metric is the ultimate reality check. When you apply the General Mills earnings power value guru lens to a legacy giant like this, you aren't asking "How fast can they sell more Cheerios?" You're asking "How much cash can this machine spit out forever if they just stop trying to expand?"
Honestly, the results might surprise you. While the market is obsessed with the "reset year" of fiscal 2026, the EPV suggests there’s a massive gap between the company’s internal engine and its current stock price.
Why the Guru Focus on EPV Matters Right Now
Most investors are obsessed with the DCF—Discounted Cash Flow. They try to predict the future. They guess at 5-year growth rates and terminal values. It’s basically educated gambling.
EPV is different. It assumes zero growth. It focuses on "normalized" earnings. For General Mills, that means stripping away the noise of the $2.1 billion North American Yogurt divestiture and the temporary margin squeeze from the Blue Buffalo pet food expansion.
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The Formula the Pros Use
The basic math is simple, though the adjustments are where the magic (or the headache) happens. You take the Adjusted Earnings and divide it by the Cost of Capital (WACC).
$$EPV = \frac{\text{Adjusted Earnings}}{\text{WACC}}$$
But here’s the kicker: for General Mills in 2026, "Adjusted Earnings" isn't just last year's net income. You have to add back "Growth CapEx." See, General Mills is spending a ton on innovation—up 25% this year alone. In an EPV world, we assume they stop doing that. We only care about Maintenance CapEx—the bare minimum spent to keep the cereal ovens running and the trucks moving.
The Reality of the General Mills "Reset"
Management is calling fiscal 2026 a "reset year." They’re intentionally sacrificing short-term margins to win back market share. It’s a gutsy move. They’ve increased media spending at double-digit rates and are leaning hard into "Remarkable Experience" packaging.
If you’re a value guru, you see through this. You see a company with:
- Operating margins that historically hover around 17-18%.
- A dividend yield that has recently pushed past 5%.
- Free cash flow conversion that stays consistently above 95%.
When the stock price hovers in the low $40s, as it has recently, the market is pricing GIS as if its earnings power is permanently broken. But is it? The company still owns 8 of the top 10 categories in North American retail by pound share. People aren't stopping their consumption of Blue Buffalo or Nature Valley bars; they’re just being picky about the price.
Breaking Down the Numbers: A "Steady State" View
Let’s get real about the valuation. If we look at the current 2026 estimates, adjusted EPS is expected to be around $3.70 to $4.10 once the "reset" dust settles.
- Normalized EBIT: Even with the yogurt sale, General Mills generates roughly $3 billion to $3.5 billion in operating profit in a normal year.
- Tax Adjustments: After a 21-22% tax hit, you're looking at a NOPAT (Net Operating Profit After Tax) of roughly $2.5 billion.
- The Maintenance Adjustment: Since GIS spends about $700 million on CapEx but much of that is for "growth," the maintenance portion is lower. This boosts the "true" earnings power.
When you divide that adjusted cash flow by a WACC of roughly 7-8%, the Earnings Power Value often spits out a number well north of $60 per share. Some analysts using the Greenwald method have pegged the intrinsic value closer to $65 or even $70.
Compare that to a market price in the $40s. That’s a massive Margin of Safety.
The Pet Food Problem (and Opportunity)
You can't talk about General Mills' value without mentioning the pets. The Blue Buffalo acquisition was supposed to be the growth engine. Lately, it’s been more of a sputter. Dog feeding is down because people are switching to cheaper brands or smaller dogs.
But gurus look at the "moat." General Mills isn't just a cereal company anymore. They are a massive distribution platform. The ability to plug a brand like Lovemade Fresh into 5,000 retail coolers in a single year is a competitive advantage that a startup simply can't replicate. That "platform value" is part of the earnings power that doesn't show up on a standard P/E ratio.
Common Misconceptions About EPV
A lot of people think EPV is too conservative. They say, "Why would I ignore growth?"
Well, growth is only valuable if the Return on Invested Capital (ROIC) is higher than the Cost of Capital (WACC). If General Mills spends $1 billion to grow but only earns 5% on that money while their debt costs 6%, they are actually destroying value.
The beauty of the General Mills earnings power value guru approach is that it identifies that "reproduction cost." It tells you what it would cost a competitor to build General Mills from scratch today. Hint: It’s a lot more than $25 billion.
What to Watch Moving Forward
If you’re holding GIS or looking to jump in, don't obsess over the quarterly EPS beats or misses. They’re noisy. Instead, focus on these three things that actually drive the EPV:
- Gross Margin Stabilization: They’re currently sitting at about 34.8%. If this stays flat or ticks up as inflation cools, the "Earnings Power" stays intact.
- Volume vs. Price: They finally saw positive organic volume in North America Retail for the first time in years. This is huge. It means the "brand power" is still there.
- Asset Sales: The yogurt divestiture was smart. It was a low-margin business. If they continue to prune the portfolio to focus on high-margin "power brands," the EPV per share actually increases because the remaining earnings are higher quality.
Your Next Steps as a Value Investor
Stop looking at the 1-year chart. It's ugly. We know.
Instead, calculate your own floor. If you assume General Mills never grows again and just maintains its current market share in cereal, snacks, and pet food, what is that worth to you?
Most EPV models suggest that at current prices, you are getting the "growth" for free. You're buying the "steady state" business at a discount, and any success they have with new product innovations or a Pet segment recovery is just a bonus.
Check the debt levels too. They’ve been using the yogurt sale proceeds to pay down debt and buy back shares. Fewer shares mean more earnings power for you. It’s a boring, slow-motion win, but that’s exactly how the gurus like it.
Keep an eye on the WACC. If interest rates drop later in 2026, that denominator in the EPV formula gets smaller, and the "Fair Value" of General Mills will jump instantly without the company even selling one extra box of Cheerios.
Actionable Insight: Calculate the "Yield on Cost" if you buy at today's price. If the dividend is 5% and the company is buying back 2-3% of its shares annually, you’re looking at a 7-8% "shareholder yield" even if the company's total earnings stay exactly the same. That is the definition of earnings power.