The last time I wrote about Kraft Foods Group, Inc. (KRFT) I stated, "I'm going to avoid pulling the trigger here..." Since the last article it dropped 1.91% versus the 2.24% drop the S&P 500 (NYSEARCA:SPY) posted. Kraft operates food and beverage businesses in North America including convenient meals, refreshment beverages and coffee, cheese and other grocery products.
On 30Oct13, the company reported third quarter earnings of $0.70 per share, which beat the consensus of analysts' estimates by $0.01. The next scheduled earnings release is on 13Feb14. In the past year the company's stock is up 11.51% excluding dividends (up 15.39% including dividends), and is losing to the S&P 500, which has gained 18.39% in the same time frame. With all this in mind, I'd like to take a moment to evaluate the stock on a fundamental, financial and technical basis to see if it's worth buying more shares of the company right now for the consumer goods sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 16.66, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 16.32 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.13), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 14.75%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 14.75%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.
EPS Next YR ($)
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 4.02% with a payout ratio of 67% of trailing 12-month earnings while sporting return on assets, equity and investment values of 8.1%, 45.5% and 13.7%, respectively, which are all respectable values. The really high return on equity value (45.5%) 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, Lancaster Colony Corporation (NASDAQ:LANC) sports a ROE of 21.9%, and WhiteWave Foods (NYSE:WWAV) sports a ROE of 12.7%). Because I believe the market may get a bit choppy here and would like a safety play, I believe the 4.02% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock bouncing off of oversold territory with a value of 45.74. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars increasing in height, indicating some bullish momentum. As for the stock price itself ($52.30), I'm looking at the 50-day simple moving average (currently at $53.06) to act as resistance and $51.16 to act as support for a risk/reward ratio which plays out to be -2.18% to 1.45%.
- Oat prices continue to rise. This is important because oat is used to produce some of Kraft's products. The reason for the spike in oat prices is due to issues with Canada's rail system not being able to keep up with the demand for shipments.
- The company announced a recall of some Velveeta products. The recall is due to the exclusion of soy from the ingredient list of some 1.77 million pounds of Velveeta past and ground beef products made by Truitt Brothers.
Kraft is a good company with a solid dividend yield and will grow slowly over time. Fundamentally the company is fairly priced based on future earnings and on future growth potential. Financially the dividend is secure and has a high yield. On a technical basis I believe there may just be some light at the end of the tunnel here with some bullish momentum. Due to the slightly bullish technicals, high dividend yield, and high return on equity I'm going to be pulling the trigger on a very small batch of this particular name right now.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!
Disclosure: I am long KRFT, SPY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.