Trading 20% from its highs, another food retailer investors will be watching this earnings season is Kraft Heinz KHC. The company is set to report its Q3 earnings on October 26.
Kraft Heinz is one of the largest consumer packaged food and beverage companies in North America. The company’s popular brands include Kraft, Oscar Meyer, Velveeta, and Capri Sun.
Investors will want to see if the company was able to profit from rising consumer staples consumption as demand for necessities spikes during economic uncertainty.
In September Kraft Heinz stated they completed two phases of their ongoing transformation-resetting foundation and implementing operating model. The company stated they now look ahead to accelerating profitable growth with a focus on personalized marketing and a strong emphasis on innovation.
Kraft and Heinz merged in 2015, also creating one of the world’s largest food companies. It will be important to see if the transformation continued to pay off during the current quarter and if the company can raise its guidance.
Outlook
The Zacks Consensus Estimate for KHC’s Q3 earnings is $0.55 per share, which would be a -15% decline from Q3 2021. Sales are also expected to be down 2% at $6.21 billion. Estimates for the period have gone down from $0.64 at the beginning of the quarter.
Year over year, KHC earnings are expected to decline 9% in 2022, but FY23 earnings are set to rise 3% at $2.75 a share. Sales are expected to remain flat in FY22 and FY23 at $26.06 billion.
Performance
KHC is only down -1% YTD to outperform the S&P 500’s -25% and its peer group’s -17%. Even better, over the last three years, KHC is up +29% to outperform the benchmark and its peer group’s -3% which includes competitors such as Mondelez International MDLZ and Conagra Brands CAG. Kraft Heinz has also posted earnings surprises for 13 consecutive quarters.
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Valuation
Currently trading around $35 a share, KHC has a forward P/E of 13.4X. This is much lower than its decade high of 34.7X and below the median of 17.2X. Kraft also trades below the industry average of 17.4X.
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Plus, KHC’s EV/EBITDA of 5.5X is also lower than the industry average of 12.5X. This shows the company may be undervalued within its industry relative to its cash, earnings, and the ability to pay off its debt. This is crucial in the current market environment.
Bottom Line
KHC currently lands a Zacks #3 (Hold) and its Food-Miscellaneous Industry is in the bottom 32% of over 250 Zacks Industries. However, KHC trades at a discount relative to its past and offers investors a solid 4.48% annual dividend yield at $1.60 a share.
The average Zacks Price Target also suggests 17% upside from current levels. Another earnings beat and positive guidance could give the stock some momentum and help confirm the company is managing inflation well.
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The Kraft Heinz Company (KHC): Free Stock Analysis Report
Conagra Brands (CAG): Free Stock Analysis Report
Mondelez International, Inc. (MDLZ): Free Stock Analysis Report
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