Kraft Foods Group (KRFT) Marked As A Barbarian At The Gate

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Kraft Foods Group ( KRFT) as a "barbarian at the gate" (strong stocks crossing above resistance with today's range greater than 200%) candidate. In addition to specific proprietary factors, Trade-Ideas identified Kraft Foods Group as such a stock due to the following factors:

  • KRFT has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $335.6 million.
  • KRFT has traded 2.3 million shares today.
  • KRFT traded in a range 208.2% of the normal price range with a price range of $2.71.
  • KRFT traded above its daily resistance level (quality: 5 days, meaning that the stock is crossing a resistance level set by the last 5 calendar days. The resistance price is defined by the Price - $0.01 at the time of the signal).

Stocks matching the 'Barbarian at the Gate' criteria are worthwhile stocks to watch for a variety of factors including historical back testing and volatility. Trade-Ideas targets these opportunities because the stock is exhibiting an unusual behavior while displaying positive price action. In this case, the stock crossed an important inflection point; namely, 'resistance' while at the same time the range of the stock's movement in price is more than twice its normal size. This large range foreshadows a possible continuation as the stock moves higher.

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More details on KRFT:

Kraft Foods Group, Inc. operates as a consumer packaged food and beverage company. It operates through six segments: Cheese, Refrigerated Meals, Beverages, Meals & Desserts, Enhancers & Snack Nuts, and Canada. The stock currently has a dividend yield of 2.6%. KRFT has a PE ratio of 53. Currently there are 6 analysts that rate Kraft Foods Group a buy, 2 analysts rate it a sell, and 5 rate it a hold.

The average volume for Kraft Foods Group has been 3.7 million shares per day over the past 30 days. Kraft Foods Group has a market cap of $50.7 billion and is part of the consumer goods sector and food & beverage industry. The stock has a beta of 0.20 and a short float of 2.2% with 3.48 days to cover. Shares are up 35.9% year-to-date as of the close of trading on Tuesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Kraft Foods Group as a hold. The company's strengths can be seen in multiple areas, such as its good cash flow from operations, notable return on equity and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and premium valuation.

Highlights from the ratings report include:
  • Net operating cash flow has increased to $334.00 million or 33.06% when compared to the same quarter last year. Despite an increase in cash flow, KRAFT FOODS GROUP INC's cash flow growth rate is still lower than the industry average growth rate of 76.82%.
  • Despite the weak revenue results, KRFT has outperformed against the industry average of 11.2%. Since the same quarter one year prior, revenues slightly dropped by 0.2%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Compared to its closing price of one year ago, KRFT's share price has jumped by 47.87%, exceeding the performance of the broader market during that same time frame. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and the Food Products industry average. The net income has decreased by 16.4% when compared to the same quarter one year ago, dropping from $513.00 million to $429.00 million.
  • The debt-to-equity ratio is very high at 2.22 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.49, which clearly demonstrates the inability to cover short-term cash needs.

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