Should You Buy Kraft Heinz Stock Before Aug. 5?
Kraft Heinz (KHC +0.51%) is a top food company whose business has been struggling in recent years. Its returns have been atrocious as its valuation has plummeted 35% in five years. But amid the decline, its yield has shot up to around 6.3%, potentially still making it an attractive option for dividend investors.
It’s also been more stable of late, rising by 6% since the beginning of the year. And the business has abandoned controversial plans to break up under its new CEO. With earnings on deck next week, on Aug. 5, is now a good time to buy this troubled food stock, while its valuation remains low?
Image source: Getty Images.
Are Kraft’s problems as fixable as the CEO claims?
Steve Cahillane took over as Kraft CEO earlier this year and abandoned the company’s plans to break up its business, instead opting to invest $600 million in a turnaround effort that involves focusing on marketing, sales, and research and development. Cahillane believes that the main issues plaguing the company are “fixable and within our control.”
Throwing money at a problem, however, is by no means enough to fix a troubled business. Kraft’s brand has been associated with unhealthy products, such as Mac and Cheese, which, while convenient, is high in sodium and highly processed. As consumers have been eating healthier in recent years and GLP-1 weight-loss pills are also curbing appetite, Kraft has faced considerable challenges. And that’s evident in its incredibly poor growth rate.
KHC Revenue (Quarterly YoY Growth) data by YCharts
Kraft’s stock may look cheap, but that doesn’t mean it’s a good buy
There’s no reason to expect Kraft’s upcoming earnings report to show any significant improvement over prior quarters. While it does have some strong brands, others are simply associated with unhealthy eating habits. Demand has at best been stable in some quarters, but for much of the past few years, the business has struggled to achieve any positive growth whatsoever.
Today’s Change
(0.51%) $0.13
Current Price
$25.80
Key Data Points
Market Cap
Day’s Range
$25.70 – $26.18
52wk Range
$21.04 – $29.19
Volume
2.1M
Avg Vol
13.9M
Gross Margin
33.45%
Dividend Yield
6.23%
Kraft’s valuation has fallen significantly, and at a forward price-to-earnings multiple of just 13 (based on analyst projections), it may seem like it’s too cheap to pass up on, but I don’t think that’s the case. This is looking like a value trap given all the question marks, challenges, and uncertainty around the business today. Even its dividend may not prove to be all that safe if its turnaround effort falls short of expectations. This may be a stock worth watching, but there is no reason to rush to buy it right now, given all the risk.
