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Investing.com -- Kraft Heinz shares came into focus after The Wall Street Journal reported on Friday that the company is exploring a breakup, potentially spinning off its grocery business while retaining its higher-margin sauces and spreads division.
But analysts at Bank of America are skeptical the move would generate meaningful upside.
“We do not see significant upside to Friday’s closing share price for KHC of $27.14,” BofA wrote in a note to clients, assuming Taste Elevation (Heinz, Philadelphia) would remain and Grocery-co (Kraft, Oscar Mayer, Velveeta) would be spun out.
The firm maintained its Underperform rating and $29 price target on the stock.
“Assuming Taste-Elevation-co is valued at high end of HNZ’s historical range (12x) and Grocery-co valued at low end of KRFT’s historical range (8x) we see limited implied valuation potential,” BofA said. Dis-synergies from a split could shave 7% of sales.
BofA drew parallels to Kellanova (NYSE:K), which spun off its North American cereal business in 2023 and became a takeover target less than a year later.
However, the note questioned whether Kraft Heinz (NASDAQ:KHC) could achieve similar results, particularly given soft fundamentals and questions surrounding assets like Oscar Mayer.
BofA concluded that while the breakup could simplify the story, “the path to significant value creation likely relies on Taste-Elevation-co achieving a similar outcome to Kellanova.”
Meanwhile, Morgan Stanley (NYSE:MS) is also unconvinced of immediate value creation, but it noted that investor sentiment “has been weak/apathetic,” and that “the stock will find support until there is more clarity on any potential proposed transaction.”
The firm added that “unlocking perceived sum-of-the-parts value would seem to be the most obvious rationale.”