Kraft-Heinz stock (KHC) has lost almost 18% in the year to date. The stock has been a perennial underperformer, also losing 9% in 2023. What’s concerning is the fact that broader markets have rallied spectacularly over the period, with the S&P 500 Index ($SPX) on track to deliver over 20% returns for two consecutive years.
KHC happens to be one of the biggest investing mistakes of Warren Buffett, whose Berkshire Hathaway (BRK.B) is the company’s biggest shareholder. Meanwhile, while KHC has eroded investor wealth and is in the red over the last five years, it has rewarded investors with generous payouts and its current dividend yield is above 5%. In this article, we’ll look at Kraft-Heinz’s forecast and examine whether the stock is a buy after the underperformance.
Kraft-Heinz’s Sales Have Sagged
To begin with, there’s plenty wrong with Kraft-Heinz, and the price action is a testimony to the company’s troubles. Consumers have been trading down to lower-priced brands, as well as smaller packages, amid tough economic conditions. The company’s volumes fell in both 2022 and 2023, and this year looks no different. During the third-quarter earnings call, Kraft-Heinz said that it expects organic net sales in 2024 to be towards the low end of its guidance of a drop of 2% to flat year over year.
Lunchables Is the New Problem Child for Kraft-Heinz
“Lunchables” – which was once expected to be a growth driver for KHC – has also been facing troubles and the company wrote down the value of the brand during Q3. In fact, the company said that barring Lunchables, it saw a sequential improvement in all other businesses in Q3.
Alluding to a report that discovered high levels of lead, sodium, and cadmium in the store versions of Lunchables, CEO Carlos Abrams-Rivera said during the Q3 earnings call, “The negative publicity that we received from that misleading interest group appears to be lingering longer.” Notably, Lunchables is facing intense competition, including from Lunchly, which is owned by popular YouTubers Logan Paul, KSI, and MrBeast. Without naming any specific opponent, Abrams-Rivera acknowledged “We are seeing some competitive entry coming into the category."
Kraft-Heinz Expects Subpar Growth in 2025
Things are not expected to improve much next year either. Consensus estimates call for a 0.3% rise in Kraft-Heinz’s revenues in 2025, which implies yet another year of falling volumes assuming higher YOY pricing for the year. Analysts are modeling a mere 1.6% rise in Kraft-Heinz’s per-share earnings in 2025.
KHC Stock 2025 Forecast
Of the 18 analysts covering KHC, 6 rate it as a “Strong Buy” and 11 as a “Hold.” One analyst rates Kraft-Heinz as a “Strong Sell,” and its mean target price of $36 is 18.6% higher than the Dec. 30 closing prices. The Street-high target price of $40 is nearly 32% higher.
Kraft-Heinz trades at just about 10x its expected earnings over the next 12 months and the multiple is near the lowest that it has been in the last three years. While Kraft-Heinz trades at a significant discount to broader markets it’s a reflection of its growth – or rather the lack of it. However, at these valuations I don’t see much room for further downside in KHC stock.
What About KHC’s Dividends?
Meanwhile, dividends remain a key priority for Kraft-Heinz and the company lists generating strong cash flow and returning capital to shareholders as its two key long-term strategic priorities. However, dividends are not contractual payments and companies can change or suspend them based on the business outlook. KHC also slashed its quarterly payout by 36% in 2019 which was a particularly troublesome year for the multinational food giant. That year the company marked down its brands by $15 billion and disclosed a SEC investigation into its accounting policies.
However, I believe Kraft-Heinz’s dividend looks safe for 2025, and given the stock’s current valuation, value investors - especially those hunting for high-dividend stocks - can consider adding KHC to their portfolios.
