Remember when I told you that I believed Kraft (NASDAQ:KRFT) was on its way up? Well, it is up 1.67% since that time; as I predicted that $51.96 would act as support (it hit $51.79 on 09Oct13 and bounced up immediately). The stock currently stands at $54.11 and is holding the support level. Kraft Foods Group, Inc. operates food and beverage businesses in North America including convenient meals, refreshment beverages and coffee, cheese and other grocery products. On October 30, 2013, the company reported third-quarter earnings of $0.70 per share, which beat the consensus of analysts' estimates by $0.01. In the past year, the company's stock is up 21.43% excluding dividends (up 24.44% including dividends), and is losing to the S&P 500 (NYSEARCA:SPY), which has gained 24.66% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the consumer goods sector of my dividend growth portfolio.
The company currently trades at a trailing 12-month P/E ratio of 17.23, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 16.98 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.31), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 13.17%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 13.17%. Below is a comparison table of the fundamentals metrics for the company from the time I wrote the last article to what it is right now.
EPS Next YR ($)
My Target Price ($)
EPS next YR (%)
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.88% with a payout ratio of 67% of trailing 12-month earnings while sporting return on assets, equity and investment values of 8%, 38.7% and 13.7%, respectively, which are all respectable values. The really high return on equity value (38.7%, tops in the Major Diversified Foods industry) is an important financial metric for purposes of comparing the profitability, which is generated with the money shareholders have invested in the company to that of other companies in the same industry (for comparison purposes, Pinnacle Foods (NYSE:PF) sports a ROE of 4.5%, and WhiteWave Foods (NYSE:WWAV) sports a ROE of 12.3%). Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.88% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financials metrics for the company from the last time I wrote the article until now.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle ground territory with a value of 51.14 with downward trajectory, indicating a bearish pattern. To confirm this, I will look at the moving average convergence-divergence [MACD] chart next and see that the black line is about to cross below the red line with the divergence bars decreasing in height, indicating some bearish momentum. As for the stock price itself ($54.11), I'm looking at 56.34 to act as resistance, and the 50-day moving average to act as support for a risk/reward ratio, which plays out to be -1.66% to 4.12%.
- On 01Nov13 the company announced it will remove artificial food dyes for natural spices in 2014 for the Kraft Macaroni & Cheese products. This is a "healthy choice" move because Yellow No. 5 is a potentially harmful coloring.
- Kraft announced it will partner with McDonald's (NYSE:MCD) to run a pilot program of selling packaged McCafe coffee at retail stores in 2014.
- On 30Oct13, the company announced earnings of $0.70 on revenue of $4.4 billion versus estimates of $0.69 on revenue of $4.56 billion.
So it is official now, Connecticut College says Mondelez's Oreo cookies (Mondelez is a spin-off from Kraft) are as addictive as crack cocaine! I'd go as far as saying the Macaroni & Cheese is as well. Although the company has great products, the stock is losing ground on reduced earnings estimates for next year while being fairly valued on future earnings and growth potential. Financially, the dividend payout ratio is middle of the road based on trailing 12-month earnings. I don't doubt management will be able to continue to increase the dividend going forward for now, but at a very low rate. Based on future earnings, the dividend payout ratio goes up to around 66% (if the dividend is kept steady). The technical situation of how the stock is currently trading is telling me we might be seeing some downward pressure in the immediate future. The stock is fairly valued on future earnings, fairly priced on future growth potential, and has bearish technicals. It's because of these reasons I will only buy a small position right here because I believe I can get it at a cheaper price in the near future.
Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!