Could Kraft Heinz Deliver Double-Digit Earnings Growth This Year?

Rob Dickerson of Deutsche Bank initiated coverage of Kraft Heinz Co KHC on Wednesday with a Buy rating and $103 price target.

Dickerson acknowledged the already high valuation of Kraft Heinz's stock, but the analyst's expectations for a high-teens earnings per share growth throughout 2017 supports a bullish stance for the food maker.

Dickerson also highlighted a few other notable initiatives to support upside in the stock, including 1) a stepped-up cost savings plan, 2) the closure of five manufacturing plants, 3) decreased deceleration of the top line and 4) further deleverage in the balance sheet.

The analyst further suggested that Kraft Heinz is expected to book approximately 80 percent of its $1.5 billion net cost savings target by the end of 2016 (versus the end of 2017) there is incremental upside to the cost savings target. In addition, the closure of various plants will increase per plant measures and increase further overall plant and company efficiency and profitability.

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But Wait, There Is More

Dickerson also highlighted a few other potential catalysts that support his view, including:

1. Support from 3G Capital's "playbook."
2. International revenue synergy opportunity "still exists."
3. Potential for dividend growth acceleration.
4. Margin expansion balanced between gross margin and SG&A reductions.

Bottom Line

Dickerson argued that Kraft Heinz's stock deserves to trade at a premium (25x) to the overall food group (20x) given the various catalysts ahead.

A $103 price target implies an approximate 24x multiple on the analyst's C2018 earnings per share estimate of $4.23 per share.