We also continue to rate Kraft Heinz (KHC) a buy. We appear to hold the minority opinion, asserts Steve Mauzy, contributing editor to High Yield Wealth.
Kraft Heinz shares have traded mostly down since our initial recommendation a year ago. The shares received a boost last week in anticipation of positive third-quarter earnings. (The numbers will be released for public consumption on Nov. 1.)
UBS raised its rating on Kraft Heinz share to buy from neutral. UBS believes (as do we) that Kraft Heinz will at the least meet the consensus estimates for revenue, earnings, and operating margin. UBS believes (as do we) that Kraft Heinz shares are oversold.
3G Capital, the management team that runs Kraft Heinz, has admirably stripped the company of fat and raised operating efficiency. Kraft Heinz sports the highest operating and net margins in the sector. The former has been increased by 13 percentage points over the past four years. The latter has been increased by 10 percentage points.
The perception is that there is nothing left to strip or improve. 3G Capital needs to move on to either acquisitions or to modernizing Kraft Heinz’s food portfolio.
On the food-portfolio front, Kraft Heinz has loaded a new venture capital fund with $100 million to explore new concepts in the food industry.
The new VC fund, Evolv Ventures, will focus on food tech — e-commerce, logistics and supply chain initiatives. The Evolv Ventures investment complements Kraft Heinz’s Sringboard fund that is exploring new brand opportunities.
It’s been a tough 12 months for Kraft Heinz shareholders. Investor expectations are low. The good news is that superior returns frequently emerge from low expectations.
