Why is Kraft Heinz Stock so Cheap?

It’s not often you find a consumer defensive stock with great dividends at a 30% discount.

Andrew Willis 8 March, 2024 | 4:35AM
Facebook Twitter LinkedIn

 

 

Interested in other cheap stocks? Check out our recent episode on Stellantis

Key Takeaways for Kraft Heinz Stock:

  • With shares trading around a discount to our valuation, while offering a 4% dividend yield, we think investors should stock up.
  • In recent years, Kraft has focused its product line on 6 “real consumer needs,” with demand for related consumer products likely to rise as rates come down: “Taste Elevation, Easy Meals Made Better, Real Food Snacking, Fast Fresh Meals, Easy Indulgent Desserts, Flavourful Hydration.”
  • Kraft Heinz increased data research and marketing budgets by 15% each last year, which we think was realized in a stabilizing share position across a host of categories and a 1.50% gain in shelf space (including through club and dollar stores) over the past year.

Andrew Willis: Do you think of Kraft Dinner and Heinz Ketchup when you hear the name of the company Kraft Heinz? It may not exactly reflect the company, but it’s at least a testament to its marketing.

This sophisticated conglomerate boosted data research and analytics spending by 15% last year, as well as marketing spending by the same rate. The problem for Kraft Heinz stock, however, is that while the company is vigorously working behind the scenes to maintain sales in today’s challenging environment, investors have been selling for the same reason. Sector director Erin Lash notes that Kraft management has been forthright that consumers are struggling under the weight of reduced government benefits and higher interest rates.

Kraft Heinz is a Strong Competitor for Consumer Wants - and Needs

But with a transformation in recent years towards “real consumer needs”, as rates come down and demand picks up… well let’s just say you might want to stock up on some Kraft Dinner now in addition to Kraft Heinz.

For Morningstar, I’m Andrew Willis.

 

 

bulls Kraft Heinz Bulls Say

  • Tempered exposure to private label (11% now versus 17% in 2019) and enhanced agility in responding to consumer trends should negate any lasting downdraft in Kraft Heinz's volume.
  • By organizing around six consumer need states, we think Kraft Heinz possesses the opportunity to more effectively tailor its offerings to evolving consumer trends.
  • The decision to focus its manufacturing assets on its highest-turning products and enlist higher-cost comanufacturers at the onset of COVID-19 allowed Kraft Heinz to efficiently mend its fractured retail relationships, in our view.

bears Kraft Heinz Bears Say

  • Inflation (stemming from commodities, labor, packaging, and logistics) has yet to abate, and it's possible Kraft Heinz will eventually struggle to pass the hit on to consumers without a more pronounced contraction in volume.
  • With supply chain disruptions being rectified and consumers altering spending as pressures on their pocketbooks become more acute, we think competitive intensity could resurface.
  • If Kraft Heinz opts to beef up its debt load, it could struggle to reinvest in the business while returning cash to shareholders.

 

The author or authors do not own shares in any securities mentioned in this article.

 

 

Get the Latest Stock Insights in Your Inbox

Subscribe Here

Facebook Twitter LinkedIn

Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
The Kraft Heinz Co36.00 USD-0.19Rating

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility