Kraft Heinz (NASDAQ: KHC) has offered deep value and high yield to investors for many years and the outlook for investors' returns continues to improve over time. The stock trades at a low 14x earnings compared to 15.8x for the broad market S&P 500 and anywhere from 20x to 35x for the highest-valued consumer staples. The stock yields close to 5% trading near $34.25 while the S&P 500 pays a paltry 1.72%. Peers in the consumer staples group typically pay 2% to 3%.
The takeaway: Investors looking for value and yield in today’s market may want to consider Kraft Heinz because of catalysts for higher share prices in the works.
Kraft Heinz is in Reversal and Primed for a Rally
The Kraft Heinz story really begins in 2015 when Kraft and Heinz, two consumer staples giants, merged to form today’s company. Fast-forward a bit and you will see that underperformance relative to pre-merger expectations, an accounting scandal and a cut to the dividend sent shares down to the levels they trade at now. Since then, the company has retooled the C-suite, divested itself of underperforming brands, shored up the balance sheet and begun to reinvest in growth. Now, with the global economy on the brink of imploding, Kraft Heinz displays strength within the consumer staples stock sector. The company has demonstrated pricing power in calendar year 2022 and another price increase was recently announced.
The company is slated to report earnings at the end of this month and should perform well. Competitors like General Mills Inc. (NYSE: GIS) show strong organic sales, core sales and margin strength, though Kraft Heinz will have a positive showing in these areas as well. Kraft Heinz should also deliver favorable guidance that could spark the next rally and analysts are taking note. The stock does not boast a robust rating or even a very active analyst community but there is a trend in sentiment and the price target investors should be aware of.
The nine analysts with current ratings have it pegged at a "hold" with a price target of $41 or 20% of upside; the sentiment and price target are firming. The stock has gotten three upgrades over the last six months that have the consensus rating verging on a "buy" and the price target up in the 12-, three- and one-month comparisons. This trend should continue in the wake of the upcoming report and will underpin price action this year and next. Add in the fact that institutions are buying this stock as well and it looks like a very good time to buy.
The latest shoutout comes from Goldman Sachs, which picked the stock from a sector it considers to be richly valued. Analyst Jason English thinks the stock will re-rate higher as headwinds for the sector ease. He upped the stock to "buy" from "neutral" and gave a price target of $43.
The Technical Outlook: Kraft-Heinz Confirms Support
Shares of Kraft-Heinz pulled back to support over the past two months but support is evident at the $32.50 level. With support confirming at this level, it looks like a move to the top of the range near $44.75 is possible by the time the next earnings are released or shortly after. If the stock can get above $44.75 it will confirm a much bigger reversal in the market that could it up to the $55 level or about 60% higher than where the stock trades now. Regardless, support for this stock is strong at this value and it pays a safe 4.75% in yield.