As the food industry's tailwinds subside and challenges increase, Goldman Sachs analyst Jason English believes General Mills (GIS) and some of its peers may be more likely to buy growth than to be bought in the foreseeable future. English downgraded General Mills to Sell and trimmed his price target on the stock in a note to investor today.

ACQUISITION MORE LIKELY THAN TAKEOVER: Goldman Sachs' English downgraded General Mills to Sell from Neutral and lowered his price target on the shares to $58 from $59, saying that tailwinds for the food industry have begun to subside and that he is starting to see evidence of "mounting" business challenges. He expects consensus estimates to decline on either disappointing data or weaker than expected results, and also expects the fundamental gap between those with material productivity savings and those without to widen, with General Mills emerging as a laggard. The analyst believes there is "elevated risk" that the company's management will respond to the headwinds with a "more aggressive," and likely expensive, acquisition agenda to buy growth and reorient its portfolio. Management has cited reshaping its portfolio toward faster growth opportunities as a key priority and lists past M&A, as well as organic expansion, as examples of the steps it is taking to achieve this, English noted. The analyst added that he expects any incremental deals to be dilutive to both earnings and returns in the near term, serving as another potential downside catalyst.

TAKEOUT TARGET: Earlier this month, Citi analyst David Driscoll said he saw General Mills, Kellogg (K) and Mondelez (MDLZ) as takeout targets with consolidation looming in the packaged foods sector. In a note to investors on May 10, Driscoll explored a potential takeout scenario for General Mills, estimating that the company could be valued at $86 per share in a buyout. The analyst said he could foresee a situation where General Mills could become a takeover candidate for 3G and Kraft Heinz (KHC).

PRICE ACTION: In morning trading, General Mills' stock slid 0.5% to $62.43 per share.