Davenport Downgrades H.J. Heinz (HNZ) to Neutral

November 24, 2008 3:04 PM EST

Davenport downgrades H.J. Heinz Company (NYSE: HNZ) from Buy to Neutral.

Davenport analyst says, "Despite our expectation for double-digit earnings growth for FY09, we are lowering our rating to Neutral from Buy. Trading at 9x EV/EBITDA and about 13x on a P/E basis (both using FY09 estimates), we prefer to remain on the sidelines at current levels. Current positives we see include continued growth for the top 15 brands, the benefit from 1H investment in the business, very favorable hedges, strong global management and a solid balance sheet. Concerns include the sequential slow-down in sales, the uncertainty faced by many companies with respect to consumer behavior, uncertainty regarding pricing, expectations for a relatively flat 2H and likely unfavorable currency translation into FY10. Currency translation has turned from a tailwind to a headwind to operating results, though HNZ has managed this risk, hedging the majority of its currency exposure in August for FY09. HNZ maintains a robust innovation pipeline with more than 400 new products to be launched in FY09-10 and has rebuilt a strong portfolio of brands, and we expect momentum to continue. We estimate free cash flow of $350-400 million."

H. J. Heinz Company its subsidiaries manufacture and market a line of processed food products throughout the world.

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