David Peltier
Management said the new earnings guidance includes the expectations for commodity costs to rise by more than the $180 million increase realized in fiscal 2007, though it should be able to pass along the majority of this to customers.
At the urging of activist investor Nelson Peltz of Trian Fund Management, who owns more than 5% of the shares outstanding, the company has sold many underperforming brands and closed 20 plants over the past 18 months to cut operating expenses. At current levels, Heinz is now trading at less than 17 times expected full-year earnings, including a 12.5% discount to Kellogg(K Quote - Cramer on K - Stock Picks) and a 7% discount to Campbell Soup(CPB Quote - Cramer on CPB - Stock Picks). Something else that makes Heinz's stock look attractive compared with its peers is the company's 3.4% dividend
yield. Heinz declared its latest 38-cent quarterly dividend Tuesday, and investors at the close of trading Sept. 18 will qualify for the Oct. 10 payment. The company also announced a $1 billion stock-buyback program in June 2006, but management said at Tuesday's investor meeting it's more interested in pursuing acquisitions for the time being than buying back shares.
In addition to offering a solid defensive investment in the current volatile trading environment, Heinz is also exhibiting solid earnings momentum for the first time in several years. With that in mind, I believe the stock is attractive to purchase at current levels. In addition to collecting the industry-leading dividend yield, Heinz shares could trade up toward the low-$50s over the coming quarters.
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