E Kraft-Heinz: I Haven't Seen A Stock This Irrationally Underpriced In A Long Time

Yes, I get it: Kraft-Heinz (NYSE:KHC) stock has printed a series of lower highs for several years, and analysts hate this company right now. Guggenheim analyst Laurent Grandet is typical: He recently downgraded KHC from neutral to sell and slashed cut his price objective from $29 to $25. Bank of America analyst Bryan Spillane similarly lambasted Kraft-Heinz, calling the management's decision to withdraw full-year guidance "harsh," while Nancy Tengler, chief investment strategist at Tengler Asset Management, declared that investors rushing to buy KHC stock now are both "early" and "wrong" in doing so.

The mainstream financial press, always prepared to pile on a stock when it's ailing, naturally has put Kraft-Heinz in its crosshairs; Warren Buffett's pick has become the media's whipping boy:

Courtesy: CNBC

Buffett's company Berkshire Hathaway has taken a $5 billion haircut due to its KHC holdings, which consist of 325 million shares of Kraft-Heinz stock, representing 26.7% of the company. Buffett himself has been forced to eat crow, conceding that he “made a mistake in the Kraft purchase in terms of paying too much."

The price pressure is chiefly the result of an uncommon and unlikely convergence of multiple unfavorable events:

  • a $15.4 billion "impairment charge" (write-down) related to the valuation of a number of businesses, including the Kraft and Oscar Meyer brands
  • a delay in filing the company's quarterly Form 10-Q report for the second quarter ended June 29
  • a dividend cut of 36%
  • deep underperformance compared to analysts' EPS and revenue projections.

A convergence of this many adverse events seldom befalls a blue-chip stock, and it's unlikely to happen again to Kraft-Heinz or any other company of its size this year. For Credit Suisse to put a $26 price target on KHC is, in my admittedly unpopular view, irrational and overreactive. If you believe that markets are efficient, then you should understand that all of the bullet points above have been priced into the shares already.

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Disclosure: David Moadel is not a licensed or registered investment advisor, and has no position in any securities listed herein.

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Comments

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Stephan Kohlmann 1 month ago Member's comment

The future of KHC largely depends on the strategic agenda of the new CEO. Lots of work is waiting for the guy.

Beating Buffett 1 month ago Member's comment

What's your personal opinion of him. Any good?

Stephan Kohlmann 4 weeks ago Member's comment

From the ER conference call, my Impression was not too bad

Beating Buffett 6 days ago Member's comment

I had the same thoughts. Time will tell though.

Adam Reynolds 4 weeks ago Member's comment

Agreed.

The comment was deleted!

David Moadel 4 weeks ago Author's comment

Among today's corporate CEOs, "not too bad" is a ringing endorsement

Dan Nicholson 4 weeks ago Member's comment

Lol, very true.

Cynthia Decker 1 month ago Member's comment

I agree. There are some staples in life. $KHC products included.

David Moadel 1 month ago Author's comment

Thank you for the comment Cynthia

Alpha Stockman 1 month ago Member's comment

I don't think the problem is the company's products. I think it's $KHC's management team which can't get its act together.

David Moadel 1 month ago Author's comment

Thank you for the comment Alpha Stockman