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On Tuesday, Bernstein analysts lowered the stock rating of Kraft Heinz Company (NASDAQ:KHC) from Outperform to Market Perform, adjusting the price target to $31.00 from the previous $34.00. The downgrade comes amid concerns over the company’s continued loss of market share in several of its key U.S.-focused brands. Currently trading at a P/E ratio of 13.1x, InvestingPro analysis suggests the stock is trading below its Fair Value, despite recent market challenges.
According to Bernstein analysts, despite Kraft Heinz overcoming supply chain issues with certain stock-keeping units (SKUs) returning to normal in February, and moving past the negative impact of a Consumer Reports article on Lunchables in April, the company faces persistent volume declines in four major product lines. These include Lunchables, Kraft Mac and Cheese, Capri Sun, and Oscar Mayer. These brands, along with Heinz, Philadelphia, Velveeta, and Ore Ida, account for approximately 60% of Kraft Heinz’s $25.85 billion in annual revenue. InvestingPro data shows the company’s revenue declined by 2.98% over the last twelve months, though it maintains a GOOD overall Financial Health Score.
The analysts expressed concern that although the categories these brands belong to are either stable or growing, Kraft Heinz is not maintaining its market share or volume. This trend is particularly troubling for the company, as it suggests a deeper issue than temporary setbacks such as supply chain disruptions or adverse media coverage.
While the stock might seem inexpensive when considering both absolute and relative terms, Bernstein analysts do not foresee any immediate positive catalysts that could potentially drive the stock’s value higher in the near term. The lack of clear drivers for growth and the ongoing challenges faced by Kraft Heinz’s significant brands are key factors contributing to the analysts’ decision to downgrade the stock rating. One bright spot for investors is the stock’s significant 5.34% dividend yield, which InvestingPro identifies as a key strength among several other positive indicators available in the Pro Research Report.
The current market performance of Kraft Heinz and its struggle to keep up with competitors in the food industry will be closely watched by investors, as the company aims to navigate through these challenges and strive for a turnaround in its market share and volume growth.
In other recent news, Kraft Heinz Company has been at the center of several notable developments. S&P Global Ratings assigned a ’BBB’ rating to Kraft Heinz’s proposed senior unsecured notes, which are expected to be used for general corporate purposes, including debt repayment. Despite a challenging environment, the company managed to improve its EBITDA through pricing and productivity gains, with a slight improvement in leverage. In a strategic move, Kraft Heinz is reportedly planning to sell its Italian baby food brand, Plasmon, with investment bank Houlihan Lokey (NYSE:HLI) facilitating the sale. This comes after a previous attempt to sell the brand in 2019. On the analyst front, Jefferies raised its price target for Kraft Heinz to $27 while maintaining a Hold rating, noting a decline in U.S. tracked channel volumes. Meanwhile, Morgan Stanley (NYSE:MS) initiated coverage with an Underweight rating and a $29 price target, citing concerns over sales trends and margin pressures. Furthermore, Health and Human Services Secretary Robert F. Kennedy Jr. has urged Kraft Heinz and other food companies to eliminate artificial dyes from their products, signaling a push for healthier food standards.
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