Not unlike the apparent love affair between Wall Street and Kraft (Nasdaq:KRFT), Mondelez (Nasdaq:MDLZ) gets quite a bit of love from the sell-side. Many analysts seem convinced that Mondelez can significantly boost its organic growth over a relatively short time and likewise significantly upgrade margins. While I think Mondelez is basically a good company, I worry that the expectations bar is being set at a level where a failure to perform is going to create a real backlash. Even if I use growth expectations beyond the published estimates of the bulls, I can't really get to a point where Mondelez looks cheap today. Q2 Comes In Light … If It MattersI'm not convinced it's going to make much difference, but Mondelez didn't report a particularly strong second quarter for a company where the expectation is for serious improvements. Revenue rose 2% as reported, which was either in line or slightly below average estimates depending upon which reporting service you use. Organic revenue growth was just under 4%, with all of the growth coming from volume. Biscuits remain strong (up about 8% for the first half), while chocolate accelerated during the quarter (first half sales growth of 6% versus Q1 growth of 5%). Gum and candy continue to weaken (down 2% versus down 1% in Q1), and there is likewise little momentum in beverages/cheese/grocery.SEE: Wall Street All In On Kraft's Improvement Potential Margins are a big deal in the Mondelez discussion (as they're not very good relative to many comparables), but Mondelez has yet to show much improvement. Gross margin declined slightly from last year and came in a bit below the sell-side target. Likewise, adjusted operating income dropped 11%, with a nearly two-point drop in margin, and came in a couple of percentage points below expectation. Throwing Money At The Problem?Mondelez hasn't exactly lived up to billing in terms of growth or margins in its brief history as an independent company, and that has attracted activist investor attention. I continue to believe that it makes little sense for PepsiCo (NYSE:PEP) to contemplate an acquisition of Mondelez, as PepsiCo really does not need another “problem child” and I'm not convinced that salty snacks and sweet snacks are as synergistic as some assume. In the meantime, it seems that Mondelez is looking to paper over some of the challenges. Management announced a $6 billion buyback, and will use commercial paper to fund that buyback. Although Mondelez isn't overloaded with debt, I'm generally opposed to using borrowed money to buy back stock. Still All About MarginsThere are two major pillars to the Mondelez story – OUS growth and margins. The company's OUS growth doesn't worry me, particularly with emerging market sales up about 10% for the quarter and U.S. rivals like Kellogg (NYSE:K) and Hershey (NYSE:HSY) not nearly so strong overseas. Margins, though, still concern me. I'm not sold on Mondelez's direct store distribution strategy, and the company's margins are simply not compelling compared to Nestle, Hershey, Kellogg, PepsiCo's snack business, or even Flowers (NYSE:FLO). While management has rolled out a target for 14% to 16% operating margins, setting a goal and reaching a goal are two separate issues. I think 40bp to 90bp annual base margin expansion target is pretty aggressive, and there is absolutely no room for any volume shortfalls along the way. The Bottom LineExpectations are already pretty robust for Mondelez. Revenue growth of 5% to 6% would make Mondelez one of (if not the) fastest-growing food companies in the space. Even if Mondelez hits its margin targets and grows free cash flow at a rate above 9%, the fair value excluding debt would be $31.50. With that, I feel like pretty much all of the good news is in the stock and the Street is already assuming that Mondelez is going to meet all of these targets. I don't like investing on the basis of assuming that everything goes right, and I wouldn't pay this price for Mondelez shares. Disclosure – At the time of writing, the author did not own shares of any company mentioned in this article.

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