KHC - Kraft Heinz: Stagnation Or Slow Decline As Consumers Opt For Private Label Alternatives

2024-05-21 00:55:16 ET

Summary

• Kraft Heinz may face challenges again as agricultural commodities and energy prices show initial signs of rebounding after two years of stagnation.
• The company's market positioning remains weak and may struggle to compete with cheaper private-label brands and those with higher perceptions of quality.
• Analysts expect a rebound in Kraft Heinz's EPS, but its future depends on commodity prices and consumer preferences.
• KHC has not risen while its EPS outlook has, pointing to undervaluation if we assume economic risk factors will not resurface.
• Since I expect food manufacturing prices to rise again while demand for KHC's productions will remain weak, I would avoid it despite its potentially low valuation.

In September 2022, I published " Kraft Heinz: Failure To Adapt And Rising Inflation May Force Dividend Cut." At that time, I had a bearish outlook on Kraft Heinz ( KHC ) due to what I viewed as a permanent stagnation created by a failure to adapt to consumer market changes and an inability to raise its prices proportionally to its costs. Since then, we have not had a dividend cut nor the recovery many had expected. Since then, the stock has lost ~4% of its value but has had a 2% total return if we include reinvested dividends. That is not a crash but continued stagnation when the rising price index signals a decline in real value, mainly when the stock market has performed well....

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