Why Is Kraft Heinz Moving Higher

Key Points

• Kraft Heinz is moving higher on a combination of tailwinds that are getting stronger. 
• The stock offers value and yield as well as an opportunity for growth. 
• Kraft Heinz reports earnings in early February and could easily smash expectations. 

To answer the question of why is Kraft Heinz NASDAQ: KHC moving higher, I must because it is executing a major turnaround plan and offers a deep value to investors and a very high yield. And this is within the consumer staples sector NYSEARCA: XLY we’re talking about, not the broad market, which is valuable to investors.

The consumer staples sector has been outperforming since the COVID-19 pandemic began, and Kraft Heinz has been at the fore, proving to have not only the resourcefulness to navigate during the pandemic but the ability to continue executing its long-term plans.

In addition, Kraft Heinz has shown a remarkable amount of brand strength and pricing power that has its bottom line growing, the balance sheet improving, and the dividend health increasing. 

Kraft Heinz Is Expected To Grow Now And In The Future

Kraft Heinz is expected to grow in FQ4 due to organic and acquisitional strength. The analysts are expecting to see revenue top $7.15 billion, which is up both sequentially and YOY, and strength is expected on the bottom line as well. The only bad news is that adjusted EPS will grow sequentially but come in flat versus last year.

The opportunity here is twofold; not only does Kraft Heinz tend to beat its consensus estimates, but Conagra Brands NYSE: CAG, another packaged food giant, just reported top and is foreshadowing both top and bottom line strength for its competitor. 

The key takeaways from Conagra Brand’s report are that organic sales were strong and margins improved more than expected. This drove a high-single-digit gain in revenue and a 26.6% increase in adjusted earnings. Assuming Kraft Heinz has similar strength its results could top the Marketbeat.com consensus estimate for revenue by 100 to 200 basis points and adjusted EPS by more than 2500 basis points. 

The Analyst's Sentiment Is Warming

There hasn’t been a lot of news out of Kraft since the last earnings report but the analyst sentiment has warmed nonetheless. The stock has gained 1 upgrade, 2 boosted price targets and a newly initiated target from Wells Fargo that came out the first week of 2023. They initiated the stock at Equal Weight which is a buy for anyone who doesn’t own it, and their price target is above the consensus.

The Marketbeat.com consensus price target assumes the stock is fairly valued at the current levels, near $41, but it is trending higher. Assuming this trend continues, this stock will have a substantial tailwind from the analysts this year. The sentiment of the 11 analysts is a strong Hold verging on Buy. 

And Kraft Heinz offers value and yield as well. Trading at 15X its earnings, it is among the cheapest consumer staples stocks on the market, and it pays one of the highest, if not the highest, yields as well.

At recent price levels, this stock is yielding 3.90%, and it is a safe payout. Not only has the company paid it consistently for years, but the business is vastly improved from just 2 years ago. In this light, investors might expect a dividend increase in the not-too-distant future but don’t hold your breath waiting for it to happen. 

The Technical Outlook: Range Bound Kraft Heinz Moves Higher 

Shares of KHC are moving within a range, but the action is bullish. The market is moving higher on an updraft that should reach the top of the range near $45. Assuming the Q4 results are as good as they could be, this market could gain enough momentum to break out to a new high. In that scenario, KHC shares could gain another $5 to $10 this year on a value-yield-driven multiple expansion.