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Investing.com - Bernstein has reiterated a Market Perform rating and $29.00 price target on Kraft Heinz Company (NASDAQ:KHC), currently trading at $27.87, following reports that the food giant is considering a potential break-up of its business. According to InvestingPro analysis, KHC appears undervalued, with a "Good" Financial Health score and attractive P/E ratio of 12.5x.
The potential restructuring would separate Kraft Heinz’s faster-growing sauces and condiments business from its slower-growing U.S.-centric grocery business, according to The Wall Street Journal, citing people familiar with the matter. With current annual revenue of $25.43 billion and EBITDA of $6.37 billion, the company offers a substantial 5.82% dividend yield - one of several favorable metrics identified in InvestingPro’s comprehensive analysis report.
The move appears to reverse the original 2015 merger between Kraft Foods and The Heinz Company, with data showing the legacy Heinz business has grown retail sales at a 5.3% CAGR over the past decade, while legacy Kraft brands have grown at only 2.0%.
The faster-growing segment, which would remain after the split (RemainCo), could represent approximately 47.5% of company-wide sales, although international margins are lower than North American operations, suggesting EBIT would likely split 40.1% in RemainCo and 59.9% in the spun-off entity (SpinCo).
While some market participants have speculated that McCormick (NYSE:MKC) might be a potential acquirer for the RemainCo business, Bernstein notes that despite strategic appeal in combining McCormick’s Flavor Solutions segment with Kraft Heinz’s Taste Elevation portfolio, a company with "deeper pockets" would be more likely to pursue such an acquisition.
In other recent news, Kraft Heinz is reportedly considering a significant restructuring, potentially splitting its business into two distinct entities. This move would involve separating its faster-growing sauces and condiments division from its slower-growing grocery business, according to The Wall Street Journal. The potential spin-off could see the grocery segment valued at up to $20 billion. Various financial firms have weighed in on this development, with Bernstein reiterating a Market Perform rating and a $29.00 price target. BofA Securities maintained its Underperform rating with the same price target, reflecting skepticism about the split’s impact. Barclays (LON:BARC) also held its Equalweight rating, aligning with a $29.00 price target amid the breakup plans. Morgan Stanley (NYSE:MS) expressed a bearish outlook, reiterating an Underweight rating and a $28.00 price target, citing concerns over market share improvements. Stifel maintained a Hold rating and a $30.00 price target, noting the potential restructuring’s impact on shareholder value.
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