Buy Kraft Heinz, Credit Suisse Says 'Synergies Will Rise Higher' As 3G Becomes Involved

In a report published Monday, Credit Suisse analyst Robert Moskow initiated coverage of KRAFT HEINZ CO KHC with an Outperform rating and a price target of $85. Kraft Heinz's strength lies in its strong management team with a proven track record. "3G Capital is known for making tough decisions that are good for the long-term health of a business, which incumbent management teams are not often willing to make," analyst Robert Moskow mentioned. 3G Capital bought Heinz in 2013 and quickly boosted Heinz's operating margins to 21 percent compared with only 15 percent before 3G bought it. In the report Credit Suisse noted, "… gross margin expansion and working capital efficiency represent the biggest opportunities for improvement at Kraft. Despite a portfolio filled with leading brands, Kraft's gross margin lags its U.S. peer group by a significant degree. As evidence, Kraft's heritage management team failed to improve the company's gross margin after spinning off from Mondelez in 2012. During the same time frame, 3G improved Heinz' by 400 bps." The packaged food industry is taking steps to reduce SG&A by adopting zero-based budgeting processes and undertaking large scale restructuring. "However, few are as aggressive and efficient as 3G," Moskow said. 3G's laser focus on cost savings and cash flow, and its pragmatic approach to business make Kraft Heinz's stock a must own for consumer staples investors seeking growth. Moskow pointed out that Kraft Heinz may be interested in purchasing a number of grocery brands owned byMondelez International Inc MDLZ, if the latter decides to sell them. "Mondelez is not focused on them, so we believe there is a significant value creation opportunity for Kraft Heinz," the report added.