Here’s Why One Of Warren Buffett’s Favorite Stocks Might Be Poised For A Rebound.
After years of declining sales, packaged food giant Kraft Heinz is seeing its first sales bump in years thanks to higher demand during the coronavirus pandemic which has caused its stock price to jump in recent weeks.
Since the market hit a coronavirus crisis-level low point on March 23, consumer stocks like Kraft Heinz have made a comeback thanks to higher demand during outbreak.
Kraft Heinz, about a third of which is owned by Warren Buffett’s Berkshire Hathaway, has seen its shares jump 32% since March 23, compared to the S&P 500’s 22% rally over that period.
The company, which produces packaged food products and owns other brands like Oscar Mayer and Capri Sun, saw its first sales bump in years as Americans stock up on comfort food as they stay home due to the spread of coronavirus.
Earlier this week, Kraft Heinz said its sales are expected to grow by 3% in the first quarter of 2020 (analysts had earlier been expecting a decline). Investors have cheered the news: The stock is up 8% since Monday, and up almost 20% over the last two weeks—outpacing the broader market.
“Kraft Heinz’s supply chain has generally held up during this stressed period, aided by its large scale and global resources, albeit with incremental costs,” writes Morgan Stanley analyst Dara Mohsenian.
The boost in sales likely won’t translate to the company’s bottom line when it announces first-quarter earnings, however: “Most food companies have discussed higher costs as a partial offset to stronger sales,” points out JPMorgan analyst Ken Goldman, who expects Kraft Heinz to reinvest much of the additional revenue.
For years, Kraft Heinz faced declining sales and its share price cratered (the stock is down 66% over the last five years). The company still has billions of dollars of debt from the Kraft and Heinz merger in 2015, and was forced to write down investments in some of its biggest brands during the past few years. Even Warren Buffett, Kraft Heinz’s largest shareholder, said last year that he was unhappy with his investment.
When CEO Miguel Patricio, a former Anheuser-Busch executive, took the helm in mid-2019, he assumed control of a “house on fire,” according to Yahoo Finance. The company’s new CEO has led a massive turnaround effort since then, however. Wall Street expects the details of that progress at the company’s investor day later this year.
“Right now, our mission as a company has never been clearer: we have a huge responsibility to keep feeding the world,” CEO Miguel Patricio said in a statement on Monday. “Our strong execution in the face of this crisis reflects the exceptional progress our people have been making.”
Wall Street analysts have mixed feelings about the stock, which currently trades at $27 per share. Three analysts give it a “buy” rating, just one gives it a “sell” rating and 17 give it a “hold” rating, according to Bloomberg data. Firms like Jefferies and Morgan Stanley see the stock rising to $27 per share and $26 per share, respectively, while JPMorgan puts the price target at $30 per share.
The stock is yet to fully recover from the coronavirus-driven market sell-off that started in late February, however: It is still down a total of 13% so far this year. “All eyes are on the go-forward strategy” now that Patricio has put a new executive team in place and invested in top brands, according to Jefferies analyst Rob Dickerson, who recently increased his 2020 forecasts for the company.
With many of Kraft Heinz’s food products experiencing a jump in sales, “the champion for sure is Kraft Mac & Cheese,” according to Patricio. It is currently the company’s top-selling product, he told Yahoo Finance on Wednesday.