Kraft Foods 1 Of 2 Long-Term Prospects To Think About

In the learning to fish series, we provide investors with suggested guidelines for choosing a potential candidate and one candidate is selected as our play of choice. We provide reasons for this choice and in doing so hope to impart some understanding to those who are new to the field of investing. It is important that readers take the time to read and understand the selection process involved in coming up with these picks. This information can be obtained here - "Our suggested guidelines when searching for new investment ideas."

Reasons to be bullish on Kraft foods (KFT)

  • A decent five year sales growth of 8.85%
  • A strong relative strength score of 79 out of a possible 100
  • Net income increased from $3.02 billion in 2009 to $3.5 billion in 2011
  • Cash flow per share increased from $2.66 in 2009 to $3.14 in 2011
  • Annual EPS before NRI increased from $1.82 in 2007 to $2.29 in 2011
  • A strong levered free cash flow of $2.6 billion
  • A decent yield of 3.00%
  • A good payout ratio of 50%
  • A retention ratio of 50
  • A projected 3-5 EPS growth estimate of 8%
  • A free cash flow yield of 4.3%
  • A decent long term debt to equity ratio of 0.63
  • A decent interest coverage ratio of 3
  • Year over year projected growth rates of 10.04% and 10.38% for 2012 and 2013 respectively.

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Company: Kraft Foods Inc

Basic Key ratios

  1. Percentage Held by Insiders = 0.36
  2. Number of Institutional Sellers 12 Weeks = 1
  3. Five year sales growth rate= 8.85%
  4. Long term debt to equity ratio = 0.63
  5. Relative Strength 52 weeks = 79
  6. Dividend 5-year Growth = 2.07
  7. Cash Flow 5-year Average = 2.61

Growth

  1. Net Income ($mil) 12/2011 = 3527
  2. Net Income ($mil) 12/2010 = 4114
  3. Net Income ($mil) 12/2009 = 3021
  4. Net Income Reported Quarterly ($mil) = 813
  1. EBITDA ($mil) 12/2011 = 8142
  2. EBITDA ($mil) 12/2010 = 7106
  3. EBITDA ($mil) 12/2009 = 6114
  1. Cash Flow ($/share) 12/2011 = 3.14
  2. Cash Flow ($/share) 12/2010 = 2.81
  3. Cash Flow ($/share) 12/2009 = 2.66
  1. Sales ($mil) 12/2011 = 54365
  2. Sales ($mil) 12/2010 = 49207
  3. Sales ($mil) 12/2009 = 40386
  1. Annual EPS before NRI 12/2007 = 1.82
  2. Annual EPS before NRI 12/2008 = 1.81
  3. Annual EPS before NRI 12/2009 = 2.02
  4. Annual EPS before NRI 12/2010 = 2.02
  5. Annual EPS before NRI 12/2011 = 2.29

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Dividend history

  1. Dividend Yield = 3.00
  2. Dividend Yield 5 Year Average 12/2011 = 3.71
  3. Dividend 5 year Growth = 3.58

Dividend sustainability

  1. Payout Ratio 09/2011 = 0.5
  2. Payout Ratio 5 Year Average 12/2011 = 0.57
  3. Change in Payout Ratio = -0.07

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 8
  2. 5 Year History EPS Growth 12/2011 = 4.35
  3. ROE 5 Year Average 12/2011 = 10.91
  4. Current Ratio 12/2011 = 0.92
  5. Current Ratio 5 Year Average = 0.97
  6. Quick Ratio = 0.57
  7. Cash Ratio = 0.22
  8. Interest Coverage Quarterly = 3.06

Company: Emerson Electric Company (NYSE:EMR)

Levered free cash flow $2.37 billion

Basic Key ratios

  1. Five year sales growth rate= 0.84%
  2. Long term debt to equity ratio = 0.38
  3. Quarterly revenue growth = 1.10%
  4. Operating margin = 16.8%
  5. Beta= 1.35
  6. Relative Strength 52 weeks = 52
  7. Dividend Yield 5-Year Average = 2.88

Growth

  1. Net Income ($mil) 12/2011 = 2480
  2. Net Income ($mil) 12/2010 = 2164
  3. Net Income ($mil) 12/2009 = 1724
  1. EBITDA ($mil) 12/2011 = 4721
  2. EBITDA ($mil) 12/2010 = 3956
  3. EBITDA ($mil) 12/2009 = 3397
  1. Cash Flow ($/share) 12/2011 = 4.46
  2. Cash Flow ($/share) 12/2010 = 3.8
  3. Cash Flow ($/share) 12/2009 = 3.26
  1. Sales ($mil) 12/2011 = 24222
  2. Sales ($mil) 12/2010 = 21039
  3. Sales ($mil) 12/2009 = 20915
  1. Annual EPS before NRI 12/2007 = 2.66
  2. Annual EPS before NRI 12/2008 = 3.11
  3. Annual EPS before NRI 12/2009 = 2.27
  4. Annual EPS before NRI 12/2010 = 2.69
  5. Annual EPS before NRI 12/2011 = 3.24

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Dividend history

  1. Dividend Yield = 3.3
  2. Dividend Yield 5 Year Average 12/2011 = 2.88
  3. Dividend 5 year Growth 12/2011 = 6.88

Dividend sustainability

  1. Payout Ratio 09/2011 = 0.51
  2. Payout Ratio 5 Year Average 12/2011 = 0.47

Performance

  1. Next 3-5 Year Estimate EPS Growth rate = 11.16
  2. EPS Growth Quarterly(1)/Q(-3) = -101.37
  3. 5 Year History EPS Growth 12/2011 = 2.01
  4. 5 Year History EPS Growth 09/2011 = 2.01
  5. ROE 5 Year Average 12/2011 = 23.37
  6. Current Ratio 12/2011 = 1.38
  7. Current Ratio 5 Year Average = 1.43
  8. Quick Ratio = 1.12
  9. Cash Ratio = 0.42
  10. Interest Coverage Quarterly = 15.03

Conclusion

The markets are still in a corrective mode, but in the interim, some sort of relief rally could take hold as they are extremely oversold. Long-term investors can use strong pullbacks to slowly start deploying money into long-term investments. A great way to get into a stock at a price of your choosing is to sell puts at strikes you would not mind owning the stock at. Investors looking for other investment ideas might find these articles to be of interest: Reasons To Be Bullish On Honeywell International and McDonald's 1 Of 3 Interesting Long-Term Prospects To consider.

Disclaimer

This list of stocks is meant to serve as a starting point. Please do not treat this as a buying list. It is imperative that you do your due diligence and then determine if any of the above plays meet with your risk tolerance levels. The Latin maxim caveat emptor applies - let the buyer beware.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: EPS and Price vs. industry charts obtained from zacks.com. A major portion of the historical data used in this article was obtained from zacks.com. Earning estimates and growth rates data sourced from dailyfinance.com.