Kraft Heinz Co (NASDAQ: KHC)

Intro
The first company discussed is probably well-known for everybody: The Kraft Heinz Company. After the merger between Kraft Foods and Heinz (yes, the Ketchup maker) in 2015, the company had its struggles culminating in 2019 with impairment charges and a SEC investigation. Since then, a new CEO took office and the quarterly dividend was reduced.

Valuation
Even though sales have been declining slightly, net profits have hovered around $400 to $900 million per quarter which translates into roughly $3 billion net profits per year. Assuming the consumer behavior doesn’t change massively in the next few years, Kraft Heinz ought to be able to generate at least similar profits going forward. It is believed that EPS of at least $3.00 per share will be possible and sustainable, which turns into a P/E ratio of 10x, an attractive valuation for a quality food stock such as Kraft Heinz.
With total long-term debt of approx. $30 billion (and total assets of >$100 billion), the leverage of Kraft Heinz is not worrisome and provides them with ample of financial flexibility.
The current market capitalization of $38 billion is below Kraft Heinz’s book value of $52 billion as of September 2019. This represents an attractive P/B ratio of only 0.75x.

What’s next?
From a market peak of almost $100 per share in 2017, Kraft Heinz has tanked to roughly $30 per share. Coupled with attractive multiples and a current 5% dividend yield, this stock looks rather appealing. The big impairment charges appears to have been a one-off. It seems that a lot of negative news has already been priced in – a classical contrarian scenario – and the stock might be ready for some better than expected news in the next few years.

Current Price
$31.24 per share