The Kraft-Heinz Turnaround Story In Pictures
We have covered the Kraft-Heinz NASDAQ: KHC turnaround story in depth. This is not another one of those articles. The fact that Kraft-Heinz is a deep-value relative to the broad market and its peers, the fact that is a relatively safe high-yielding dividend grower, and the health of the turnaround have all been established. This article is a look at how those factors have impacted the technical picture and where we think the price action is going from here. In our view, the market tide has turned for this stock and it is on the cusp of a sustained upward movement that could more than double the stocks price.
Kraft-Heinz, That Was Then This Is Now
The Kraft-Heinz story starts with accounting improprieties, a restatement of income, a cut to the dividend, and an implosion in share prices. That implosion shaved more than 75% of the stock’s price at the low of the sell-off but the bottom has been put in. There’s new management, there’ve been divestitures, and the balance sheet is greatly improved. The caveat is that the bottom and reversal were from down to sideways as is so often the case. The pandemic amplified the movement, sparked the lowest low of what became and Head & Shoulders reversal parter, and cemented the stock in a range that dominated the price action until very recently.
This is exhibit #1, the monthly chart of Kraft-Heinz share prices. The Head&Shoulders pattern can be clearly seen at the low of the sell-off and it was confirmed in early 2021. Price action moved higher but resistance near the 150-day moving average capped the gains and established the top of the trading range at $5. The indicators in this time frame are consistent with a change of sentiment and have even pulled back and are now rolling into fresh buy signals that could impact price action for the next few quarters if not years.
The Kraft-Heinz Reversal Is Confirmed At A Higher Level
The price action in Kraft-Heinz hit a peak in early/mid-2021 that resulted in a pullback to firmer support levels. The peak was driven by the combined effects of the turnaround efforts and pandemic spending and then capped by profit-takers and lingering resistance at a previous key level. This pullback is consistent with a Head&Shoulders Reversal and resulted in a test and confirmation of support at the neckline of the pattern. This is a new, higher level and confirms the market is advancing into shares of KHC as the monthly chart suggested.
Notably, the $35 support level was itself confirmed by a Head&Shoulders reversal. In our view, this suggests support at this level is strong and that is consistent with the most recent earnings report. The company exceeded expectations on the back of volume and pricing and was able to give a favorable outlook. The report resulted in a near-10% move for the week, a new multi-month high, a break above the 150-day moving average, and a large Marubozu Candle. We consider this to be a strong signal and it is supported by weak bullish crossovers in MACD and stochastic.
The Technical Outlook: Kraft-Heinz Is Moving Higher
The daily charts of Kraft-Heinz price action may be the most bullish of them all. The chart shows the H&S bottom at the $35 support level and that is confirmed by three strong days of buying. Those three days created three large green candles that amount to Three Soldiers, a pattern that often confirms reversal of price action. In our view, with price action now at a new multi-month high, traders should expect to see price action head up at least to the $44 level which is consistent with the highs set in mid-2021.
What happens when price action reaches the $44 level is highly dependent on general market conditions and Kraft-Heinz results but it is our view that resistance will fall, sooner or later, and price action will continue to move higher. The move will be driven by price-multiple expansion, and inflow into what is now a 4.15% yielding stock that trades at only 15X its earnings outlook. The key to this story is that all three timeframes are in alignment with the tide, the waves, and the ripples all moving in the same direction. There will be pullbacks in price action but we expect them to be muted and then the rebounds to be overly large.
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