Kraft Heinz No Longer A Buy At Deutsche Bank

Deutsche Bank has been a Kraft Heinz Co KHC bull since at least early 2016, but the research firm sees multiple concerns ahead and said Tuesday that investors need to "let the dust settle" before being buyers of the stock.

The Analyst

Deutsche Bank's Rob Dickerson downgraded Kraft Heinz from Buy to Hold with a price target lowered from $58 to $52.

The Thesis

Investor sentiment surrounding the food company is "fairly low," and Deutsche Bank's checks and analysis point to improving distribution, velocity and share trends in U.S. channels versus competitors, Dickerson said in the downgrade note.

Yet the same checks also point to generic brands increasing their distribution, especially within Kraft Heinz's biggest categories, the analyst said. 

Kraft Heinz has been active in competing against generic brands by lowering its price points and focusing on promotional activities, Dickerson said. But the spread between Kraft Heinz's higher weighted average category dollar share and those of private labels were flat year-over-year in the fourth quarter, and Kraft Heinz's volume share gap contracted 65 basis points, he said. 

While investors are wise to question Kraft Heinz's effectiveness in competing against smaller generic brands, recent investments in price could impact the bottom line if its commodity cost basket re-inflates in 2019, Dickerson said.

To counter these concerns, the food company needs to show notable volume or mix improvements and improved margins and reaffirm its prior 2019 EBITDA growth guidance before investors can become aggressive buyers again, in Deutsche Bank's view. 

Price Action

Kraft Heinz shares were up 0.16 percent at $47.80 at the time of publication Tuesday. 

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