On Wednesday, Jefferies analyst Scott Marks increased the price target for Kraft Heinz Company (NASDAQ:KHC) shares to $27.00, up from the previous $26.00, while maintaining a Hold rating on the stock. According to InvestingPro analysis, the company appears undervalued at its current market capitalization of $34.94 billion, with shares trading at an attractive P/E ratio of 12.9 and offering a substantial 5.44% dividend yield.
The adjustment in price target comes after a review of the company’s recent performance. Marks noted that Kraft Heinz’s U.S. tracked channel volumes experienced a decline of approximately 6% year-over-year in the last 12 weeks ending March 22nd. This downturn marks one of the most significant challenges within the firm’s coverage and represents a sequential decline from the third and fourth quarters of 2024. InvestingPro data shows this aligns with broader company trends, as revenue declined by 2.98% over the last twelve months, though the company maintains a GOOD financial health score.
Further observations by the analyst indicate that the U.S. retail sector is losing market share in many top categories. In response to these trends, Kraft Heinz has not yet increased promotional activities to stimulate demand. Management at Kraft Heinz has been reluctant to return to pre-pandemic levels of promotions, leading to speculation about what might prompt a change in this strategy.
Marks’ commentary reflects on the company’s current stance on promotions and its potential impact on demand. "KHC’s U.S. tracked channel volumes fell ~6% y/y in L12W end March 22nd, amongst the most challenged in our coverage and sequentially worse vs. Q3/Q4’24, while trends deteriorated further into April. U.S. retail is losing share in many top categories, while KHC has yet to lean into promotions in an attempt to spur demand. Management has been mostly adamant about not reverting to pre-pandemic promo levels, but we wonder what it will take for that to change," Marks stated.
Investors and market watchers will be keeping an eye on Kraft Heinz to see if and how the company adjusts its promotional strategies in the face of these challenges. With the company’s next earnings report due in 13 days, InvestingPro subscribers can access additional insights through the comprehensive Pro Research Report, which includes detailed analysis of the company’s financial health, valuation metrics, and growth prospects. The new price target set by Jefferies reflects a cautious but slightly more optimistic outlook than previously held.
In other recent news, Kraft Heinz reported a decline in organic sales by 3.1% in its fourth-quarter earnings, with a 4.1% drop in volume, partially offset by a 1% increase in pricing. The earnings per share (EPS) for the quarter was $0.84, exceeding Stifel’s estimate by $0.05, aided by favorable tax rates. Morgan Stanley initiated coverage on Kraft Heinz, assigning an Underweight rating and a price target of $29.00, citing concerns over sales trends and margin pressures. S&P Global Ratings assigned a ’BBB’ issue rating to Kraft Heinz’s proposed senior unsecured notes, with proceeds expected to be used for general corporate purposes, including debt repayment. The company is also reportedly seeking to sell its Italian infant food brand, Plasmon, with investment bank Houlihan Lokey (NYSE:HLI) facilitating the sale. Additionally, Robert F. Kennedy Jr. has urged Kraft Heinz and other food companies to eliminate artificial dyes from their products. Stifel revised its price target for Kraft Heinz stock from $32.00 to $31.00, maintaining a Hold rating, following the company’s earnings release. The company’s North American operations saw a 4.5% volume decrease, contributing to a 5.2% drop in North America Retail Accelerate organic sales.
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