Kraft Heinz Shares Lifted to Overweight at Wells Fargo

Wells Fargo analyst John Baumgartner upgraded Kraft Heinz to overweight, saying he likes "food stories with a low bar" and the company's brands have strength.
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Kraft Heinz  (KHC) - Get Report shares rose after Wells Fargo analyst John Baumgartner upgraded the foods giant’s shares to overweight from equal weight.

He also increased his price target to $38 from $28. 

Baumgartner wrote in a report that he likes "food stories with a low bar," the Fly reports. And Kraft Heinz certainly lives up to that billing.

The company has been reeling ever since Warren Buffett’s Berkshire Hathaway  (BRK.A) - Get Report and Brazilian private-equity firm 3G backed the merger of Kraft and Heinz in 2015.

The stock has dropped 63% over the past five years and 10% over the past three months. Kraft Heinz stock recently traded at $28.53, up 1.7%.

Analysts complain that under 3G’s direction the company simply cut costs rather than trying to revitalize. Kraft Heinz brands were seen as old and tired.

But Baumgartner says the company’s mix of brands isn’t as "off-trend" as the stock’s bears contend.

Much of Kraft Heinz’s revenue comes from the top 20% of income-earning households and from consumers aged 34 and under, he said. 

The company’s internal savings can finance reinvestment, and it has new growth initiatives in U.S. categories, Baumgartner said.

Kraft Heinz posted a 6% increase in organic sales during the first quarter, as the coronavirus was beginning to rage.

But Morningstar analyst Erin Lash wrote in a report last week that she didn't think "this growth will prove sustainable, as consumers ultimately destock their pantries over time.

“Further, we don’t expect the competitive intensity that has characterized the industry (from other branded operators, lower-priced private-label fare, and small, niche operators) is poised to fade.”