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Kraft Heinz: The Turnaround Is Taking Shape

Jun. 01, 2020 12:29 AM ETThe Kraft Heinz Company (KHC)21 Comments
Carles Diaz Caron profile picture
Carles Diaz Caron


  • The Kraft Heinz Company is showing signs of stabilization.
  • The share price is widely undervalued.
  • The stock is very likely to benefit from the COVID-19 crisis for longer than expected.
  • From here, I believe a turnaround is already taking shape.

Editor's note: Seeking Alpha is proud to welcome Carles Diaz Caron as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA PREMIUM. Click here to find out more »

Editor's note: Seeking Alpha is proud to welcome Carles Diaz Caron as a new contributor. It's easy to become a Seeking Alpha contributor and earn money for your best investment ideas. Active contributors also get free access to SA PREMIUM. Click here to find out more »

Kraft Heinz productsImage source: supermarketnews.co.nz

Dividend: $1.60

Dividend Yield: 5.16% (as of writing)

All-time Highs: $97.77

Current Stock Price: $29.95 (as of writing)

Investment Thesis:

Since the merger between Kraft Foods and H. J. Heinz, The Kraft Heinz Company (NASDAQ:KHC) has faced a series of headwinds that have plunged the company into a spiral of bad news that has depressed the share price to very low levels. At the moment, the stock trades at an approximate 70% discount from its highs in February 2017.

The high amount of debt the company is currently carrying, together with a consumer shift towards more organic, healthier foods, and a cost-cutting strategy whose results have turned out to be disastrous have put the company between a rock and a hard place and questioned the credibility of the management team.

However, the company is giving signs of stabilization when it comes to revenue, Free Cash Flows and debt reduction capacity. From here, the beginning of a turnaround is most likely, and the company has the capacity and opportunity to turn things around. The COVID-19 crisis will play a key role in this recovery process, and the dividend is well covered by the Free Cash Flow, but don’t expect any increase until 2022.


This article was written by

Carles Diaz Caron profile picture
Subscribe for an average ~20% return per year according to Tipranks. I am a long-term Dividend Growth Investor always looking for new opportunities in the stock market since 2015. In order to find good deals in the stock market, I look for companies that are going through a bad time and carefully assess the chances that the financial situation will return to the path of profitability and growth. My objective is to find stocks that can be bought and held for many years and try to get them for the lowest price possible during temporary headwinds. For me, the most important aspects when analyzing a stock's turnaround chances are that the company's products are essential to a big portion of the population, healthy and stable profit margins, a sustainable debt and dividend, and a long-term trend that suggests the products and services offered will continue to be essential for the decades to come.

Analyst’s Disclosure: I am/we are long KHC. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (21)

@Carles Diaz Caron Given Pepsi's superb results, do you believe KHC would be a more than worthy trender, come 7/30?
We think they are finally trying to refresh their product portfolio. Recently tried the new salt & sugar free ketchup, we really liked it.
KHC has no propriety products. Its tomato ketchup is now made by many others and those sell at much lower price. Regarding salad dressings, those made by Kroger are the best and much cheaper than other brands including KHC's. Same goes with its other products. New generation is more organic focus and KHC products are less appealing and healthy. I bought KHC stock believing Warren Buffet, considered a stock genius, must have some reason for having a large position. That was my biggest mistake and the loss I incurred completely wiped out my other stocks gains. Avoid this dud stock that is not going to revisit it prior highs. There is heavy overhead the stock has to overcome before it moves higher. With obsolete products, that is not likely to happen.
I started acquiring shrs of KHC back in the 1st qtr when the shrs took a hit, as my reasoning was because of the looming COVID-19 affect on everyone being ordered to stay at home as much as possible except for having to go out & buy essentials. KHC had many products for people to do their own quick & easy cooking, like Mac & Cheese, still love it at the age of 63 yrs. So the pps has been gyrating up & down between $29 & $30+ a shr as of late. Holding my shrs until the pps hits my target of $35 for a nice little profit.
HATEFEEBAY profile picture
@Novavax Op Warp Speed You are almost there to 35 now, but I am holding for the nice dividend and I think this will be at 50 within 2 years.
Thanks for the article. The virus is definitely helping them. It is giving them the growth and breathing space they need. Zoom just had its market cap go over $50 billion, KHC’s is $37billion. I seem to have bought the wrong virus stock. Dang it.
craftbrewinfo profile picture
There are plenty of bargains out there now and will be in the coming months. High quality A rated companies too. Much better places to invest than KHC
Good article. But a juicy div is what MO and PM pay. After all, KHC cut its div.
Maybeimright profile picture
Good luck.

Few pointers for those looking to invest:
1) Jorge has publicly stated they were used to the safety of brands, but that the world has changed.
2) The debt load is insane
3) You cannot extrapolate the recent revenue boost into perpetuity. This has nothing to do with their "strategy" and was simply driven by Covid-19.
4) Their long-term lunch is still being eaten by private label / smaller brands. This is NOT a growing space.
5) Please plot marketing/R&D cost as % of revenue vs peers.

May the investing force be with you, you will need it.
Interesting read, even if I pause at the potential of diving in almost 'blind' to the stock, as visibility and management transparency is lacking, and lacking seriously with this company:
- KHC has been a serial disappointer, and senior management, esp. at Board (and ownership) level has been pretty constant, even to Mr. Buffett's frustration;
- your article has not covered the biggest competitors for rack space worldwide, i.e. Unilever, Nestlé and Mondelez, and everytime I visit a supermarket, I come away thinking why are KHC's products almost always stacked away somewhere, and no excitement seems to emanate from them, while the giants named above seem to continue to find their exciting 'niche', in the most visible part of the supermarket, be it in normal counters or the refrigerated sections. I dread KHC's products going into the frozen foods fridges, as they will likely remain frozen there!;
- so many have tried and failed in coffee, I worry KHC will not break into the shelf stacking order that is controlled by Nestlé, and countless local and in-store brands;
- as COVID effects wane gradually, is there a risk KHC's businesses go back to a lower new normal, worldwide?
- I'd always wondered who the bondholders are, it would not surprise me if 3G management insiders are themselves in it, so this business could just be a way to 'milk' the poor, ageing beast, to the shareholders' peril.
And your "exited" by packaging and shelf placement, my life is different, I'm "excited" by good products not flashy ones. I'll take the 5% and wait. No "Starbucks'"
KHC does not operate in over 200 countries in the world because there are only 195. That said, it must be pointed out that KHC is US and EU centric (mature markets) and has a small footprint elsewhere evidenced by 70-75% 0f its business being in North America. Also KHC has been trying to and has sold or relinquished businesses in India, Australia and NZ.
Carles Diaz Caron profile picture
Hello Chocbuff, and thank you for your comment.

I understand your point, but the brief overview of the company is based on how they describe themselves in their website. Based on the United States, there are 195 countries, while based on the UN, there are 251 countries and territories, many of them not recognized as a country, like Hong Kong.

I don't have an opinion about it, and as I said, I just described the company as they describe themselves. I will add "and territories" to avoid the confussion.

Thank you again.
Dependant territories, chocbuff, there is no requirement to be an independent established "country" to be able to sell "coffee."
I think the point here is that KHC should cease to pretend it is a global powerhouse, not try to supply over 200 countries, dependencies, departments, cantons, whatever (inefficient and costly), stick to its mature markets that have a strong history with Kraft and Heinz (US, Europe) and beware the tastes, traditions and culture of emerging markets.
al_chemyst profile picture
Mac n Cheese is still decimated at the grocery store.
Zucks profile picture
Yes. Even though I have a full position in KHC, three times we ordered this noodle product for a change of pace during our in place sojourn, we always purchased a competitor! Why? All of Krafts’ version of Mac n cheese (and velvetta’s version) were always sold out! On multiple sites! At least this article briefly mentions the ongoing research, which is missing in various articles. It will take a while but millennial families with kids are learning that maybe an occasional use of Mac n cheese may not harm them after all. Imagine healthier versions, backed by KHCs marketing, as already evidenced by their current efforts.
mygoals profile picture
Very nice article and one of the better I've read explaining their diversification of products. Can you elaborate on the percent affect the loss of MCD to their coffee sales will have on their overall numbers ie FCF and YoY organic growth? I focus there because that seems like a very large international customer to lose. Thanks again for the article!
Carles Diaz Caron profile picture
Thanks for your answer. A lot of negativity is priced in, but I see a lot of diversification in Kraft Heinz. We should ask ourselves whether things are really that bad.
Hi Carles firstly welcome to Seeking Alpha as a contributor. I do have a position in KHC (looking back it was a mistake buying ) and am not bullish over a turnaround. I am still concerned over the FCF. After paying out dividends, KHC are left with 600-800 M. Annual interest charge are more than a billion USD. I am skeptical as to how much principle debt that KHC are able to repay at the current rate.
Abullman profile picture
As long as 3G is in charge the only one that will benefit financially from KHC is 3G. The large debt (typical of VC’s) and lack of research, development, and marketing through extreme cost cutting is unfortunately a seriously crippling scenario which may never be overcome.
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