Deutsche Bank Gives Earnings Preview On Kraft

Despite Kraft's

LT potential portfolio improvement, Deutsche Bank retains its HOLD opinion over intermediate term issues. A challenging input cost environment, slowdown in gum/confectionery growth, and integration issues provide short term uncertainty. Leverage, modest FCF, and competitive developed markets lead it to see the valuation as reasonable. Deutsche Bank has adjusted 2010 and 2011 EPS lower to reflect selected challenges. Along with updates to the 2011 outlook, investors will likely focus on the U.S. marketplace, the loss of Starbucks, and general concerns on pricing/inflation. It expects greater focus on Cadbury's categories 1 year after the acquisition, particularly on gum dynamics. Deutsche Bank's $30 target is based on equal weighting of traditional multiples, its IVCC framework, and a DCF model, incl: 4% sales, 5% EBIT, 7-8% EPS/cash flow growth using a 9% WACC. Upside risks include cost savings, low inflation, rapid Cadbury integration. Downside risks include competition, inflation pressure, M&A integration. Deutsche Bank has a $30 PT and Hold rating on KFT KFT is trading higher at $31.05