There’s nothing like a little investor’s day for a company to get back on track and to reaffirm their goals and progress. On Wednesday, that’s exactly what Kraft Heinz (NASDAQ: KHC)
did and it couldn’t have come at a better time. Their shares have been sloping lower
since the middle of August after putting in a solid 80% run
since the lows of March.
On the grander scheme of things, however, this summer’s rally was in fact bucking the longer-term trend, not the other way around. It’s been a steep ride down the hill since their 2017 highs for investors of the $40 billion food company and many have surely been throwing in the towel. However, management is fighting hard to turn things around and used this week’s investor’s day to put some spit and polish on the situation. Based on Wall Street’s response since it seems to be working already.
Management laid out their goals for the coming years and there were two headline grabbers. They plan cut $2 billion in costs over the next five years which should boost earnings per share growth by upwards of 6%. They’re also planning to sell most of their cheese portfolio to a French company for $3.2 billion which will shore up their cash reserves nicely.
The stock received a double upgrade on the back of these updates with both Guggenheim and CFRA joining the bull camp. The former moved its rating on Kraft shares from Sell to Neutral while also raising its price target to $34. Analyst Laurent Grandet noted how Kraft is “moving from a short-term, cost-cutting centric company to a consumer-focused, longer-term growth mandate. It’s clear that much work has been done in the past few months – all while coping with the increased demands associated with the COVID-19 pandemic. In addition, the announced divestiture of the natural cheese business is a first step in the right direction to improve the balance sheet".
CFRA had previously had shares on a Hold rating but saw fit to move them up to a Buy while also boosting their price target up to $37. In a note to clients, analyst Arun Sundaram wrote “we left the meeting with a clearer picture and more confidence that Kraft Heinz can once again return to sustainable earnings growth”.
Stifel is also bullish on the company and views them as a dark horse for the rest of 2020. In a note to clients they said “we find a company with a new strategy for its business that is already in motion, roughly nine months, and therefore perhaps further along and more developed than investors might realize. In addition, with such strong cash flow, we are seeing a faster reduction in its debt load, while preserving its dividend, which could reduce its risk profile”.
The cultural shift to working-from-home has been good for the company, with CEO Miguel Patricio noting how e-commerce is worth $1 billion to the company and is doubling every year. On top of that, there’s been no noticeable slow down in the sales of core household products like macaroni and cheese or baked beans. In fact, they’re able to boast 97% penetration which means they have a product in the home of 97% of Americans.
There are not many companies out there who can make a boast like that and if management can continue to turn the ship around, then the future is bright. Investors thinking about getting involved have a lot to be excited about. Revenue growth is slow but going in the right direction, with a 3.7% growth year over year print in the company’s July earnings. On top of that, there’s a juicy 5.2% dividend yield to keep things ticking over while management keep working their magic.
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