Morgan Stanley Upgrades Kraft Heinz, Boosts Stock

Morgan Stanley's multiple concerns reflected in a bearish stance on food company Kraft Heinz Co KHC is now fully priced into the stock after a 53-percent loss in value over the past year.

The Analyst

Morgan Stanley's Dara Mohsenian upgraded Kraft Heinz from Underweight to Equal-weight with an unchanged $35 price target.

The Thesis

Kraft Heinz's stock has been hit by a series of negative earnings revisions culminating with the Street's fiscal 2019 and 2020 EBITDA estimates falling by around 31 percent, Mohsenian said in the upgrade note.

Exiting the company's most recent earnings report, there are four reasons to believe EBITDA can stabilize:

• Management's non-key commodity inflation net of cost savings guidance appears conservative:
• The company could see topline and commercial profit growth from $500 million in commercial investment in 2018 and 2019;
• Expectations for positive organic sales growth and more favorable pricing; and
• Foreign exchange guidance looks conservative.

The research firm's reverse discounted cash flow model suggests the Street is assuming Kraft Heinz will show zero long-term EBITDA growth after management's revision to fiscal 2019. The analyst said the company should be able to show a 0.3 percent long-term growth rate through fiscal 2025

Price Action

Shares of Kraft Heinz were trading higher by 2.1 percent at $33.09 Monday morning.

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