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KHC Stock: Low Valuation, Solid Dividend Yield

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Dec. 26 2018, Updated 1:05 p.m. ET

Kraft Heinz’s valuation and dividend yield

As of December 24, Kraft Heinz (KHC) stock had fallen 45.3% year-to-date, dragged down by the company’s soft sales and weak profit margins. KHC stock now looks attractive—it is trading at a forward PE ratio of 11.5x, ~41% lower than its historical average of 19.5x, and its dividend yield is impressive, at 6%.

Whereas we expect Kraft Heinz’s sales to benefit from its improved volumes and acquisitions, promotions and inflation in the meat, dairy, and nut categories could restrict top-line growth. Kraft Heinz’s profit margins have disappointed, and its EPS fell YoY (year-over-year) in its last reported quarter. Although lower pricing and cost headwinds are affecting the company’s profitability, management expects its earnings to return to growth. Wall Street expects Kraft Heinz’s top and bottom lines to improve YoY in future quarters, but for its growth to stay low.

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Wall Street’s recommendations

Of the 23 analysts covering Kraft Heinz stock, 14 recommend “buy,” five recommend “sell,” and four recommend “hold.” Their consensus target price of $59.82 for KHC implies a 40.6% upside to its December 24 closing price of $42.54.

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