Morgan Stanley rates Kraft Heinz as underweight.

Morgan Stanley assumed coverage of Kraft Heinz Corp. (KHC - Get Report)  on Monday, Sept. 17, with analysts rating the food giant "underweight" with a $52 price target.

Kraft Heinz was down 1% to $58.35 when the market closed on Monday.

Morgan Stanley defended its valuation of Kraft Heinz by saying that analysts "see valuation as too high after considering pension income, high debt leverage and risk to consensus," in a note titled "Assume Coverage at Underweight: An Unsustainable Diet."

Analysts cited "less rosy [mergers and acquisitions] prospects" after the company dropped its bid for Unilever, the consumer foods company which owns brands such as Hellmann's mayonnaise. 

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In 2017, Kraft Heinz offered $143 billion for Unilever. The bid failed after Unilever said it was too low. 

In September's Action Alerts Plus members-only call, Jim Cramer dove into the details of the deal and why the Action Alerts Plus portfolio sold its shares before the deal broke down. 

Kraft Heinz "had bid for Unilever and the Street went absolutely gaga for the bid. It meant that Kraft Heinz would have the renewed growth that comes from a giant acquisition," he said. "Both companies, by the way, were roughly the same size back then so it doesn't look as silly as it would now with prey Unilever almost $100 billion bigger than predator Kraft Heinz."

Cramer said he and his team backed away "because we knew that then-large Kraft Heinz shareholder Warren Buffett hates hostile takeovers and we knew from our own work that Paul Polman, the CEO of Unilever, was willing to play hardball to stop the deal. That hostility meant Buffett would pressure Kraft Heinz to stop the acquisition which is exactly what happened."

"We fully acknowledge potential stock upside risk in the event Kraft Heinz consummates an EPS-accretive transaction given Kraft-Heinz's strong M&A track record, and that low rates fuel EPS accretion," Morgan Stanley analysts wrote. "However, we believe an accretive deal is already somewhat priced into valuation and Kraft Heinz's 'first' choice is already likely off the table with its dropped Unilever bid."

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