KRFT Market Research & Analysis Report
Updated Aug 20, 2014

Growth and Balance Sheet

Kraft Foods Group Inc. reported that net income declined by 42 percent in its second quarter.  Earnings fell to $482 million, or 80 cents per share, from $829 million, or $1.38 per share, in the same quarter a year ago. The company posted revenue of $4.75 billion compared with $4.72 billion in the same quarter a year earlier, and missed Wall Street estimates. Cheese revenue was up 1.6 percent to $952 million, refrigerated meals revenue grew 2.6 percent to $916 million and beverage revenue was flat at $748 million. Deserts and meals were down five percent to $581 million, mainly because of "continued weakness in ready-to-eat Jell-O" as well as promotional costs. Canada business revenues declined 3.1% to $523 million due to currency headwinds. Organically, revenues grew 3.6% due to volume/mix gains of 4% from Easter shift. Pricing declined 0.4 pp in the quarter.

Valuation

KRFT PE stands at 12.41 below the industry average of 21.34, and below the S&P 500 average of 17.93. The company is currently trading below the preferable P/E ratio of 15x. KRFT current Price/Sales of 1.88 is above the average of its industry, of 1.74.  The beta of 0.78 implies lower volatility of the stock with respect to the S&P 500. KRFT has shown negative earnings consistency over the last five years. KRFT’s earnings per share over the last five years have increased by 12.91%. The current quarter earnings in comparison to the same quarter last year have decreased by 42.03% which is below the required level of 15%.  KRFT’s head to head comparison to its main competitor shows that the company has a gross margin above the average of its main peers, and one that is above the industry average. The operating margin is above the average of the selected peers and the industry. KRFT’s twelve trailing months EBITDA is $4.66 billion, above the industry average. The company has a total debt to equity ratio of 183.20. KRFT’s current price levels are above the preferable level is 7% below the 52 week high of $61.10, and the technical indicators are neutral. KRFT has a dividend yield of 2.10% and payout ratio of 39%.

About KRFT

Kraft Foods Group, Inc. operates as a consumer packaged food and beverage company in North America and worldwide. It operates through Beverages, Cheese, Refrigerated Meals, Meals & Desserts, Enhancers & Snack Nuts, Canada, and Other Businesses segments. The company was formerly known as Kraft Foods Global, Inc. and changed its name to Kraft Foods Group, Inc. in March 2012. Kraft Foods Group, Inc. was founded in 1980 and is headquartered in Northfield, Illinois.

Competitor Comparison

Kraft Foods Group, Inc. (KRFT) N.V.

Highlights

The Company’s brand portfolio consists of food brands in North America, including three brands: Kraft cheeses, dinners and dressings; Oscar Mayer meats, and Maxwell House coffees- plus over 20 brands. It manufactures and sells food and beverage products in 50 categories. The stock closed yesterday’s trading session at $57.08. In the past year, the stock has hit a 52-week low of $50.54 and 52-week high of $61.10. KRFT has a market cap of $33.90 billion and is part of the financial sector.

Market leader in confectionery segment    

Globally recognized brand

Distribution network 

Strong R&D and innovation

High debt exposure      

Brand switching in the segment is quite high

Intense competition 

Rise in cost of raw material

KRFT Intrinsic Value

Stock Valuation Model & Intrinsic Value Definitions

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. KREFT's 52 week high is $61.10 current price is $57.08, is 7% below 52 week high.

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 12.41 below the average industry P/E ratio of 21.34 and is below the S&P 500 P/E ratio of 17.93.

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.18% of KRFT stock. Management's representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

KRFT is trading in the range of $53.60 - $57.40 in the past 30 days. The stock has been showing support at $53.60 and resistance in the $60.70 range. The stock is trading below the 50-Day Moving Average and above the 200-Day Moving Average. The RSI(14) is 49.90. Our indicators give a neutral view on KRFT.

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Investor’s sentiment for the stock.

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 2 Buy, 5 Outperform, 8 Hold, 1 Underperform and 0 Sell.

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. KRFT’s annual EPS for the last 5 years were 3.30, 3.20, 3.00, 2.75, 4.51 this type of earnings action is negative.

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry. KRFT have total debt/equity ratio of 183.20 which is negative.

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. KRFT’s EPS growth for this quarter relative to the same quarter a year earlier is -42.03%, below our target.

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. KRFT’s annual earnings growth rate over the past five years is 12.91%, above the target growth rate.

¹Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.