Because of the "25-day rule," analysts whose firms have done underwriting for the initial public offering of
have had to abstain from initiating coverage on the food company. But today marks the end of the 25-day period, and
Credit Suisse First Boston
(two firms involved in Kraft underwriting) jumped right in, saying Kraft was all that and a bag of chips.
Lehman consumer-products analyst Andrew Lazar started Kraft at a strong buy today, with a 12-month price target of $36 and a current fiscal year EPS estimate of $1.20 a share (Kraft earned 24 cents a share in the first quarter of the current fiscal year). CSFB's David Nelson initiated coverage with numbers in the same ballpark, rating the stock a buy with a 12-month price target of $40.
At midday today, Kraft was off 15 cents, or 0.5%, to $30.50.
"Our positive investment thesis is predicated on several key tenets," wrote Lazar, "1) superior top and bottom line growth rate, 2) impressive brand portfolio, 3) cross category sale, 4) direct store door delivery advantage, 5) strong free cash flow, and 6) management depth."
Nelson penned something quite similar: "We are launching coverage of Kraft with a buy rating, given the company is a premier global packaged food company with powerful brands, impressive scale, superior product innovation and marketing, and a strong management team."
"We are confident that Kraft can consistently deliver 3% top line growth," Lazar wrote. Adding to the list of reasons for his strong buy rating was a "Compelling Valuation: Kraft shares trade at roughly 10.5x our 2001 EBITDA estimate -- only a slight premium to the average packaged food stock."
Kraft is trading at an even lower 9.3 price-to-earnings multiple to Nelson's 2002 predicted earnings and is "an 11.7% discount from the average
Credit Suisse's packaged food universe or a 12.8% discount from the average of our universe of comparable global packaged food companies." Nelson adds that his current discounted cash flow models show "nearly a $44 present value estimate."
Kraft's initial public offering was a spinoff from the tobacco giant
. On the
day of the IPO, shares of Kraft gained just slightly to an intraday high of $32, after pricing at $31. The stock gained just 0.8% by the close of its first day of trading on June 13.
"We feel that Kraft is a true bellwether stock, a 'must have' for food stock investors," wrote Nelson.
Salomon Smith Barney
and Credit Suisse First Boston were the lead underwriters in the Kraft IPO;
J.P. Morgan Chase
Deutsche Banc Alex. Brown
Morgan Stanley Dean Witter
and Lehman also took part in the deal. This has led to a dearth of commentary on Kraft, the maker of Altoids and Vegemite.