Kraft Heinz Co (NASDAQ: KHC) is trading at a 40% valuation discount versus its peers and represents a good buying opportunity for investors, according to BofA Securities.
The Kraft Heinz Analyst
Bryan Spillane upgraded Kraft Heinz's stock from Neutral to Buy with a price target lifted from $32 to $38.
The Kraft Heinz Thesis
Spillane said Kraft's valuation discount compared to its packaged food rivals is in part due to a lack of confidence in management's strategy change, little trust in its product portfolio, and question marks related to the balance sheet and dividends. But management started to address these concerns in 2019 and is now well-positioned to not only take advantage of the current eat at home trend but adjust itself to future recessions and other changes.
In terms of the balance sheet, Spillane said the company has enough cash to maintain its current dividend yield of 5.4%. Management was active over the past eight months refinancing existing debt and it has just $1.5 billion in maturities due from now through fiscal 2027. The company still generates $700 million of cash after factoring in dividends and debt obligations which makes the case for market confidence to improve.
The research firm's revised $38 price target is based on 15 times 2021 EPS estimate, which is still a discount to the packaged food group at 16 times but implies the performance gap versus its rivals "is closing," the analyst wrote in the note.
KHC Price Action
Shares of Kraft Heinz were trading higher by 5.6% at $30.86 at time of publication.