This Analyst Thinks It Could Get Worse For Kraft Heinz

Investors assuming Kraft Heinz Co (NASDAQ: KHC)'s business can't get any worse are likely wrong, according to Wolfe Research.

The Analyst

Wolfe Research's Scott Mushkin downgraded Kraft Heinz from Peer Perform to Underperform with a fair value price target lowered from $33 to $27.

The Thesis

Kraft's management indicated during its fourth-quarter conference call it will be increasing prices by the end of March, Mushkin said in a note. The research firm's first-hand checks found only three brands cost more (Jell-O, Kool-Aid and Velveeta) on a year-over-year basis. Meanwhile, other brands including Heinz Ketchup actually saw a price decrease.

Overall, a basket of 17 different Kraft items cost 2.6 percent less today than it did last year at retail giant Walmart Inc (NYSE: WMT).

It's possible Kraft oversaw a price increase at some of Walmart's competitors, but Mushkin said it's "difficult to retain if they are not accepted by Walmart."

Kraft Heinz boasts among the best EBITDA margin rates in the industry, but multiple factors aside from the absence of price increases could see its financial profile worsen in the near term, Mushkin said.

Price Action

Kraft Heinz was trading marginally lower Friday at $32.73 per share.

Related Links:

Morgan Stanley Upgrades Kraft Heinz, Boosts Stock

Credit Suisse: Kraft Heinz Could Be Facing 'Serious' Balance Sheet Issue