KHC Shares Sink 7.0% In A Day, Time To Buy The Stock?

We believe there are several things to fear in KHC stock given its overall Weak operating performance and financial condition. Hence, despite its Low valuation, this makes the stock look Risky. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $31 Bil in market cap, Kraft Heinz provides food and beverage products, including condiments, dairy, meals, and meats, marketed and sold internationally through direct sales and independent distributors.

[1] Valuation Looks Low

This table highlights how KHC is valued vs broader market. For more details see: KHC Valuation Ratios

[2] Growth Is Very Weak

• Kraft Heinz has seen its top line shrink at an average rate of -0.3% over the last 3 years
• Its revenues have fallen -3.8% from $26 Bil to $25 Bil in the last 12 months
• Also, its quarterly revenues declined -1.9% to $6.4 Bil in the most recent quarter from $6.5 Bil a year ago.

This table highlights how KHC is growing vs broader market. For more details see: KHC Revenue Comparison

[3] Profitability Appears Weak

• KHC last 12 month operating income was $5.2 Bil representing operating margin of 20.4%
• With cash flow margin of 17.4%, it generated nearly $4.4 Bil in operating cash flow over this period
• For the same period, KHC generated nearly $-5.3 Bil in net income, suggesting net margin of about -20.8%

This table highlights how KHC profitability vs broader market. For more details see: KHC Operating Income Comparison

[4] Financial Stability Looks Weak

• KHC Debt was $21 Bil at the end of the most recent quarter, while its current Market Cap is $31 Bil. This implies Debt-to-Equity Ratio of 68.5%
• KHC Cash (including cash equivalents) makes up $2.6 Bil of $82 Bil in total Assets. This yields a Cash-to-Assets Ratio of 3.1%

[4] Downturn Resilience Is Moderate

KHC saw an impact slightly worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• KHC stock fell 30.4% from a high of $44.29 on 13 May 2022 to $30.81 on 12 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $38.65 on 29 April 2024 , and currently trades at $26.02

 
2020 Covid Pandemic

• KHC stock fell 37.6% from a high of $32.13 on 1 January 2020 to $20.06 on 12 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 5 June 2020

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read KHC Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.