My valuation of Kraft Heinz before the earnings season

A few days ago I took a long read of Kraft Heinz’s unpleasant 2018 annual report and three consecutive quarterly reports since then. I then wrote this analysis and valuation of the company as I see it now since the 2019 full-year earnings season is approaching:

TL;DR: I perceive the current market value of the company as fair and I am not invested. If the price approaches an area below $25, I will take a closer look again.

Let me know what you think and whether you agree/disagree on certain points.

Cheers, Oliver Sung

Tough time to be breaking into the space but really nice work on the piece and the broader website. I have no real thoughts on the actual piece, it’s outside my space, but great initiative. Hope it works out!

Thank you so much. Very glad you like it. I plan on taking an educational direction with Junto Investments and write about not just investments, but doing specific analysis case studies and valuations, book lessons, studies of history, psychology, economics, etc. And maybe document my learning process in the CFA program (currently passed level I).

id say their net income/fcf is about 2.5b. takeover value is prolly about 70b. 28x multiple. issue with them is the 30b debt coupled wit accting problems. those are what causes cos to fail. with that said i still love heinz ketchup on my hotdogs. their philadelphia cheese in my bread. and their velveeta cheese with my mac. but i buy kirkland bacon now!

Thanks a lot for your reply. Kirkland is an incredible brand!

I don’t dwell on your estimate of FCF, although it’s a bit lower than my normalized estimation. However, it seems you erroneously compared levered FCF with the “unlevered” takeover value to arrive at 28x multiple. I think the correct thing is to compare levered FCF with the market cap of $38 billion to arrive at a 15x multiple.

i think the biggest issue nowadays is ppl dont incorporate the level of debt in their multiple. esp with the pervasive amount of debt issuance to fund buybacks to make eps multiples appear more attractive. but if a downturn were to hit whether secular by nature or stock specific such as in heinz you see the effects in its price. the 90 dollar crash to 30 did not happen randomly. its the debt that made it so. and irrespective of how much the stock falls, the debt will remain constant.

Don’t stress it Oliver, Nerdy loves to ramble about debt.