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Kraft Heinz Stock: Is the Relief Rally Done?

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Nov. 7 2019, Updated 1:47 p.m. ET

  • Kraft Heinz stock has risen about 16% since its third-quarter results on October 31.
  • Multiple analysts raised the target price.

Kraft Heinz (KHC) stock hasn’t been a good investment for most of the year. However, the recent surge in the stock brought some relief for investors including Warren Buffett. The stock has risen about 16% since the company posted its third-quarter earnings on October 31.

Kraft Heinz’s third-quarter revenues and EPS continued to fall. However, the adjusted earnings beat analysts’ estimates by a wide margin. The company posted an adjusted EPS of $0.69, which fell 9.2% YoY (year-over-year) and beat analysts’ estimate of $0.54. The significant earnings beat lifted the stock higher.

Several analysts increased their target price on the stock. Analysts made the following upward revisions:

  • J.P. Morgan raised the target price to $34 from $28.
  • UBS increased the target price to $32 from $30.
  • Wells Fargo increased the target price to $31 from $27.
  • Berenberg raised the target price to $34 from $30.
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Will the uptrend in the Kraft Heinz stock hold?

While we’re impressed with Kraft Heinz’s bottom-line beat, sluggish sales and the EBITDA margins are still a concern. We expect the company’s revenues and margins to continue to fall in the short term.

Negative currency fluctuations and divestitures will likely hurt the top line. Also, lower shipments and weak volumes could remain a drag. Weak sales will likely take a toll on the company’s margins. Also, higher costs could suppress the margins and bottom line.

Analysts expect Kraft Heinz’s top line to decline in the fourth quarter. The company’s revenues will likely remain subdued in 2020 as well. Analysts expect a double-digit decline in the bottom line in 2019. Meanwhile, the company’s adjusted EPS will likely fall by mid-single-digits in 2020.

We think that a weak financial performance could limit the upside in Kraft Heinz stock. Despite several analysts increasing their target price, the consensus target price is $31.03. The consensus target price indicates a downside of 6.4% in the stock based on its closing price of $33.14 on Wednesday.

Among the 19 analysts tracking Kraft Heinz, 14 maintain a “neutral” stance on the stock. Four analysts recommend a “sell,” while one analyst has a positive view. Investors could use the rally in Kraft Heinz stock to book profits.

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