RBC Capital Reiterates Outperform as Kraft Heinz (KHC) Makes Plans for 'Big Bets' This Year
RBC Capital reiterated an Outperform rating and $88.00 price target on Kraft Heinz Company (NASDAQ: KHC) following the company's 4Q earnings report.: KHC reported 4Q15 adjusted EPS of $0.62, ahead of the consensus estimate of $0.58. Kraft Heinz plans to spend more on innovation and measured media in '16 behind "big bets", with a goal of stable revenue this year. RBC is intrigued, and hopes that the pipeline of renovation/innovation will prove incremental. Kraft Heinz seems to be making bigger, fewer, higher-conviction bets and some have paid off.
Analyst David Palmer commented, "Kraft-Heinz reported 4Q15 adjusted EPS of $0.62 versus RBCe $0.57 ($0.58 cons). Despite a step down in organic net sales growth in 4Q (-3.1% vs. RBCe -1.5%), the company drove profitable net sales with less promo activity. In addition, $125M of cost savings in '15 led to 11% EBITDA growth YOY and 18% in the US (70% of profit). Our synergy cost savings estimates ramp from $125M in 2015 to $830M in 2016 and $1.5M in 2017 ($1.9B annual run rate by 4Q17). Our synergy timing is likely one reason that our 2016E EPS is below consensus, while our 2017E EPS estimate is above. We increase our 2016 and 2017 EPS estimates from $2.81 and $3.84 to $2.87 (+31% YOY; $2.95 cons) and $3.89 (+35% YOY; $3.70 cons), respectively."
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Shares of Kraft Heinz Company closed at $74.96 yesterday.