Heinz ( HNZ), the world's largest maker of ketchup, is one of a few companies largely immune to a global economic slowdown. The company is benefiting from lower commodity prices and the ability to raise its own prices, protecting profit margins at a time when other companies' earnings are collapsing. TSC Ratings gives the stock "A" and "Buy" ratings.

Heinz had average gross, operating and net margins of 36%, 15% and 8%, respectively, over the past 10 years, despite accelerating inflation, led by gasoline prices. The company's products are relatively price inelastic as they represent a low share of a consumer's income. Add to that well-known brand names, and the result is pricing power that produces consistent earnings.

Heinz has a high and stable ROE, averaging 44% over a decade. The ROE figure is exaggerated by the company's capital structure, which is reliant on debt. However, the load is not excessive and remains within outer bands, with 60% of total assets of $10.5 billion being funded by debt and other liabilities. This is high but not unmanageable.

For a large, mature multinational company, Heinz trades at a slightly high price-to-earnings ratio of 18. Nevertheless, we put a price target of $60 on the stock, based on the company's pricing power and expansion into emerging markets. Heinz's all-time high was about $55 in 1999.

Heinz improved earnings per share by 14.3% in the most recent quarter compared with a year earlier. The company has demonstrated a pattern of positive earnings per share growth over two years. We expect this to continue. During the past fiscal year, Heinz increased its bottom line by earning $2.63, which compares with $2.38 in the same period a year earlier. The expectations for 2009 are for earnings to reach $2.91 per share.

Net income growth from the same quarter 12 months earlier greatly exceeded that of the S&P 500, but is less than the food products industry average. Net income increased by 11.5% to $228.96 million from $205.29 million.

Sales at the North American Consumer Products segment rose almost 12%, while Heinz Europe jumped 20% and Heinz Asia/Pacific sales ballooned 23%.

Sixty percent of the company's product portfolio is in Health & Wellness, a section growing at twice the industry rate. This is a higher-margin business and includes infant and nutrition brands, and weight management products.
Sam Patel, CFA, is the manager of mutual fund research for the TheStreet.com Ratings.

In keeping with TSC's Investment Policy, employees of TheStreet.com Ratings with access to pre-publication ratings data must pre-clear any potential trade through the legal department, and are prohibited from trading any security that is the subject of an unpublished rating revision until the second business day after the rating is published.

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