We've been asking ourselves recently if the market has placed a fair valuation on Kraft Heinz. Let's dive into some of the fundamental values of this large-cap Consumer Staples company to determine if there might be an opportunity here for value-minded investors.
An Exceptionally Low P/B ratio but Trades Above Its Graham Number:
The Kraft Heinz Company, together with its subsidiaries, manufactures and markets food and beverage products in the United States, Canada, the United Kingdom, and internationally. The company belongs to the Consumer Staples sector, which has an average price to earnings (P/E) ratio of 24.36 and an average price to book (P/B) ratio of 4.29. In contrast, Kraft Heinz has a trailing 12 month P/E ratio of 18.7 and a P/B ratio of 0.92.
Kraft Heinz's PEG ratio is 2.74, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Exceptional Profitability Overshadowed by Excessive Leverage:
| 2019-12-31 | 2020-12-31 | 2021-12-31 | 2022-12-31 | |
|---|---|---|---|---|
| Revenue (MM) | $24,977 | $26,185 | $26,042 | $26,485 |
| Gross Margins | 32.6% | 35.0% | 33.3% | 30.7% |
| Operating Margins | 19.9% | 21.1% | 19.6% | 17.2% |
| Net Margins | 7.75% | 1.36% | 3.89% | 8.92% |
| Net Income (MM) | $1,935 | $356 | $1,012 | $2,363 |
| Net Interest Expense (MM) | -1,361 | -1,394 | -2,047 | -921 |
| Net Interest Expense (MM) | -$1,361 | -$1,394 | -$2,047 | -$921 |
| Depreciation & Amort. (MM) | -$994 | -$969 | -$910 | -$933 |
| Earnings Per Share | $1.58 | $0.29 | $0.82 | $1.97 |
| EPS Growth | n/a | -81.65% | 182.76% | 140.24% |
| Diluted Shares (MM) | 1,224 | 1,228 | 1,236 | 1,227 |
| Free Cash Flow (MM) | $2,784 | $4,333 | $4,459 | $1,553 |
| Capital Expenditures (MM) | -$768 | -$596 | -$905 | -$916 |
| Net Current Assets (MM) | -$41,604 | -$38,765 | -$34,948 | -$33,746 |
| Current Ratio | 1.03 | 1.34 | 0.99 | 0.87 |
| Long Term Debt (MM) | $28,216 | $28,070 | $21,061 | $19,233 |
| Net Debt / EBITDA | 5.37 | 7.35 | 3.95 | 3.95 |
Kraft Heinz benefits from stable revenues and increasing reinvestment in the business, strong margins with a stable trend, and wider gross margins than its peer group. The company's financial statements show positive EPS growth and consistent free cash flow. However, the firm has a highly leveraged balance sheet.
