Key Points
- Kraft Heinz is only 5% down from the broader market and has better qualifying stats than close competitors.
- The company's price target stays on the high side of the range.
- Analysts have dubbed Kraft Heinz a "moderate buy."
Among large-cap consumer staples, the Kraft Heinz Company (NASDAQ: KHC) is one of the most recognizable. Right now, it could also be one of the safest bets on the market.
In a recent note to clients, the Kraft Heinz team relayed that the current pace of share recovery is notably slower than had been originally anticipated and that the company's market share remains far lower than before the pandemic. While this might sound discouraging, Kraft Heinz's year-to-date losses fall only about 5% away from those among the broader market. This means that Kraft Heinz may have a slight edge on the rest of its competition.
Analysts seem to remain a bit cautious by giving Kraft Heinz a "moderate buy" rating but investors may want to consider investing despite an outright "buy" edict.
Kraft Heinz Stock in a Good Place
At first look, Kraft Heinz is a stable stock, with a 12-month median price target of $41.75. The consensus estimate is on the higher end of the $34 to $48 range. The current stock value, at $34, is already at the low end of the projected range, hinting that analysts expect the stock shouldn't suffer a major decline.
Similarly, the current value is in the lower quarter of the stock's 52-week range ($32.73 to $44.87). It is also fluctuating around -4% down on the year, sitting in the third of the 50-day range ($32.95 to $38.91), with the updated price target exceeding that same range.
Kraft Heinz has a net margin of 5.92% with gross revenue of $26.04 billion and a price/sales (P/S) ratio of 2.91. The company's net income is $200.9 million with a return on equity of 6.82%.
The current Kraft Heinz price target of $41.10 represents a 20.63% upside. Its price-to-earnings (P/E) ratio is $28.43. The company pays an annual dividend of $1.60 with a dividend yield of 4.7%. Unfortunately, it pays out more than 131% of its earnings as dividends, which suggests that KHC may not have sufficient earnings to cover its divided payments down the road. Finally, the company's beta is 0.72, meaning its share price is only 28% less volatile than the S&P 500.
Consistent Earnings Beat Shows Promise
Quarterly earnings per share (EPS) consistently beat the consensus estimate and often the whole range estimate as well. In the last year, actual earnings beat the range every quarter until the most recent, which can easily be blamed on complications resulting from the pandemic.
In Q2 of 2022, analysts estimated an earnings range of $0.63 to $0.73 with a consensus estimate of $0.68. Actual earnings beat the estimate at $0.70, only slightly bested by the top of the range. It was the first quarter in at least a year when reported earnings failed to beat the entire range.
The numbers look even better from an annual perspective. The only year in which the company's EPS did not beat the estimate was 2018. That year, reported earnings of $3.53 came in a little more than a nickel short of the estimate but still sat quite comfortably in the range. Every subsequent year, annual earnings always beat the range. In 2019, reported earnings of $2.85 bested the range by a penny. The margin was double that in 2020, with a reported earnings of $2.88. Add another couple of pennies to the same margin for 2021 — earnings were reported as three cents higher than the range limit of $2.89.
Consistently Beating the Competition
Kraft Heinz's closest large-cap consumer staples rivals include Lamb Weston Holdings Inc. (NYSE: LW) and General Mills Inc. (NYSE: GIS).
When comparing basic stock factors, Lamb Weston Holdings beats Kraft Heinz about 57% of the time but doesn't mean that Lamb Weston is a better investment. Lamb Weston might have a higher price target at $83, but this only represents a 0.08% upside — minimal compared to Kraft Heinz.
More importantly, LW's gross revenue is less than 20% of KHC, at $4.10 billion, with a P/S ratio of 1.60. Its net income is only $1.01 billion and it has an EPS of $1.22. Lamb Weston reports lower revenue than KHC and currently trades at a lower P/E ratio, making Kraft Heinz the more affordable stock.
While both stocks seem to have a 2:1 outperform/underperform ratio, Lamb Weston's beta is 0.51, which means its share price is 49% less volatile than the S&P 500 and double Kraft Heinz' share price.
General Mills also beats KHC about 58% of the time but, like LW, this does not mean GIS is a better investment. Sure, its current price target is $76.38 within the range of $64 to $88. However, it also has a -1.4% downside despite staying in the green over the past five-day, one-month, three-month and year-to-date periods (nearly +15% on the year, to be exact).
General Mills' gross revenue is in line with KHC, at $18.99 billion with a higher P/S ratio (2.42) on net income of $2.71 billion. With $4.75 EPS, GIS has lower revenue but higher earnings. Since it trades at a lower P/E than KHC, it is more affordable than KHC. GIS only has a 1.4% upside with a beta of 0.31, making KHC a more favorable investment.
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