Summary
- KHC is significantly undervalued.
- 3G Capital and Berkshire Hathaway are incentivized to replace management if results are not seen.
- Poor operating results and gloomy short-term guidance shocked the analyst community, leading to drastic price target cuts and downgrades.
- $15B write-off in two brands was expected and management had guided toward that as a possibility previously.
- Consensus expects significant margin compression (~400-500bps) from historical operating margins. Management states synergies still exist from the Kraft/Heinz deal.
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The Kraft Heinz Company (KHC) in my opinion represents a short-term buying opportunity with asymmetric returns. When you look at dreary and tired food stocks you don't typically associate them with 20-30% upside. Due to a write down of $15B in goodwill/intangibles, poor operating results, and less than stellar guidance, the analyst community has drastically downgraded expectations for the stock. Even the "Oracle of Omaha" himself, Warren Buffett, said "We overpaid for Kraft." He went on to say that he has "absolutely no intention" of adding or subtracting to their stake in KHC.
