By Sam Boughedda
Kraft Heinz (NASDAQ:KHC) was upgraded to Neutral from Sell with a $34 per share price target at UBS on Thursday.
Analysts remarked in a note to clients that the downside risk is priced in, and their previous concerns were about the company's ability to grow EBITDA in 2023 driven by sustained inflationary pressure coupled with the expectation for less price contribution.
UBS sees an upside to sales but believes inflation/supply chain headwinds will weigh on profit in the third quarter.
"Similar to most packaged food companies, KHC's sales in Nielsen measured channels accelerated in 3Q to 10.8% from 7.8% in 2Q. In addition, we believe there could be upside potential from retailer inventory replenishment and growth in the foodservice channels. We model 11.2% organic growth for 3Q, above the Street's 8.4%. However, this is likely offset by incremental inflation in eggs, butter, pork belly, and electricity, in addition to supply chain constraints," they added.
They concluded: "Over the last 4 months the stock is down -15% vs the XLP -6%. KHC recently updated their 2H22 EBITDA guidance, calling for a 43%/57% split in 3Q/4Q. At $33.62, we believe the market appreciates these headwinds and our 2023 EBITDA estimate is now largely in-line with the Street."