Kraft Heinz (KHC) - Get Report was given a "tactical" upgrade at J.P. Morgan to overweight from neutral as the firm said it sees the U.S. food production space as a good place for investors to place money amid the coronavirus pandemic.
The firm isn't changing its annual estimates on the company much and its price target remains flat at $29. But J.P. Morgan's undervaluation trading under 10x EBITDA (compared to the 11.6x average for the sector) makes Kraft Heinz an attractive buy.
"On the positive side, the stock’s valuation is still relatively attractive, Covid-19 should help increase demand, and we think the multiple has room to expand if investors were to gain more confidence in the company’s turnaround plan," analyst Ken Goldman wrote.
J.P. Morgan's food retail checks suggest that first quarter to date comparable sales estimates were up in the mid-teens despite a 5% decline in comps during the first eight weeks of the year.
"Leverage works both ways, and during relatively good times - which Covid-19 currently brings to U.S. food producers' revenues - higher debt loads will disproportionately reward the bottom lines of companies that rely on it," the analyst wrote.
However, there is also risk with Kraft Heinz as the company has provided limited visibility into its strategy, which KHC said will not be announced until May at the earliest.
The price target represents a potential upside of 26% from the stock's previous closing price of $22.99. Shares of Kraft Heinz were rising 2.75% to $23.62 in trading on Wednesday.