On Tuesday, Kraft Heinz Company (NASDAQ:KHC) experienced a change in stock rating, as Piper Sandler downgraded it from Overweight to Neutral. The firm also revised the price target for Kraft Heinz, reducing it to $35.00 from the previous $40.00.
The downgrade was attributed to the absence of expected retail improvements, which were initially thought to be a catalyst for the company's growth, particularly with the addition of incremental foodservice initiatives.
The analyst from Piper Sandler explained that the downgrade was a result of the retail momentum not materializing as anticipated and the prediction that any significant improvement is still likely 2-3 quarters away.
Despite the stock trading at 52-week lows, the firm expressed a preference for greater visibility and confidence in the potential for better U.S. retail momentum before issuing a more favorable rating.
Kraft Heinz's financial forecasts were also adjusted, with the estimated earnings per share (EPS) for 2025 being lowered from $3.10 to $3.05 and the 2026 EPS forecast set at $3.23.
The reduction in the price target reflects a lowered target multiple, which shifted from approximately 13 times EPS to about 11 times, based on the slower than expected improvement in retail trends.
In addition to the changes in EPS estimates and price target, Piper Sandler mentioned the potential for incremental upside in the foodservice (FS) sector. However, they noted that this potential was not sufficient to outweigh the weaker retail trends observed.
The analyst concluded by stating that the firm has rolled forward to a 2026E base in response to the adjustments in the retail sector's growth trajectory and the stock's valuation multiples.
In other recent news, Kraft Heinz has reported a 2.8% drop in net sales to $6.38 billion, a steeper decline than anticipated. This has led the company to adjust its forecast for 2024 earnings per share, now expecting them to be at the lower end of the previously stated $3.01 to $3.07 range.
In response to these financial results, several analyst firms have revised their stance on the company. Deutsche Bank (ETR:DBKGn) downgraded Kraft Heinz stock from Buy to Hold, adjusting the price target to $35.00.
Goldman Sachs (NYSE:GS) reduced its price target for Kraft Heinz to $32.00, maintaining a Sell rating, while TD Cowen maintained a Hold rating with a steady price target of $36.00.
In board developments, Kraft Heinz appointed Debby Soo, CEO of OpenTable, Inc., to its Board of Directors, effective October 24, 2024. The company also returned over $1.5 billion to shareholders through dividends and share repurchases and extended the maturity date of its $4.0 billion revolving credit facility to July 8, 2029.
Lastly, Rashida La Lande, Executive Vice President and Chief Legal and Corporate Affairs Officer, announced her immediate departure from Kraft Heinz. These are the recent developments for Kraft Heinz.
InvestingPro Insights
In light of Piper Sandler's downgrade of Kraft Heinz (NASDAQ:KHC), InvestingPro data provides additional context to the company's current financial situation. Despite the downgrade, Kraft Heinz maintains a significant dividend yield of 5.15%, which aligns with the InvestingPro Tip that the company "Pays a significant dividend to shareholders." This could be attractive to income-focused investors, even as the stock faces challenges.
The company's P/E Ratio (Adjusted) of 11.64 for the last twelve months suggests a relatively modest valuation, which may be factoring in the slower retail growth mentioned in the analyst report. Additionally, the Price to Book ratio of 0.78 indicates that the stock is trading below its book value, potentially offering value to investors.
An InvestingPro Tip notes that the "RSI suggests the stock is in oversold territory," which corresponds with the article's mention of the stock trading at 52-week lows. This could signal a potential buying opportunity for contrarian investors, although it's important to consider the reasons behind the stock's recent performance.
For readers interested in a more comprehensive analysis, InvestingPro offers 8 additional tips for Kraft Heinz, providing a deeper understanding of the company's financial health and market position.
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