Kraft Heinz (KHC) stock has turned out to be a lousy investment for its shareholders. Kraft Heinz shares fell about 45% in 2018. The stock has continued to underperform the broader markets by a wide margin this year. Kraft Heinz stock has fallen 37.4% on a YTD (year-to-date) basis as of today. Notably, the stock has fallen nearly 54% from its 52-week high of $58.08. Meanwhile, Kraft Heinz is trading about 8% higher than its 52-week low of $24.86.
Kraft Heinz has faced a series of weak financial performances, massive asset write-downs, a dividend cut, and the SEC probe. The company’s second-largest investor, 3G Capital Partners, trimmed its stake more in September. 3G Capital Partners offloaded about 25.1 million shares for $28.44. In August 2018, 3G Capital Partners sold about 20.6 million Kraft Heinz shares for $59.85. Meanwhile, Warren Buffett’s Berkshire Hathaway is the company’s largest shareholder.
While few investors would have predicted the dramatic fall in Kraft Heinz stock, the company’s financial performance indicated trouble. For instance, Kraft Heinz lost shelf space to competitors. The company has posted weak revenues since 2017. Kraft Heinz struggled to defend its market share and relied on promotions to support sales, which dragged its margin down.
What should investors do?
Investors could follow Buffett and continue to hold Kraft Heinz stock. The sharp downfall in the stock removed most of the downside risks. However, the stock’s recovery might not be in the offing.
We think that Kraft Heinz could have a disappointing financial performance in the near term. Analysts’ estimates indicate that the company’s revenues might fall in the coming quarters. The company’s EPS decline rate will likely accelerate. Kraft Heinz’s weak financial performance could restrict the recovery in its stock.
Until Kraft Heinz returns to the growth path, investors can benefit from the company’s high dividend yield. The sharp decline in the stock price drove the company’s yield higher despite the dividend cut. Kraft Heinz’s current dividend yield is 5.9%, which is attractive.
However, Kraft Heinz investors should keep a close eye on the company’s debt level. The company’s total debt-to-EBITDA ratio was 4.9%, which is high. Diminishing profits are also a concern.
Analysts recommend a “hold” on Kraft Heinz stock
Most of the analysts covering Kraft Heinz stock maintain a neutral outlook. Among the 18 analysts, 14 recommend “hold,” three recommend a “sell,” and one recommends a “buy.”
Analysts have a target price of $28.65 on Kraft Heinz, which implies a potential upside of 6.4% based on its closing price of $26.94 today.