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Is Kraft Foods or Mondelez Appetizing After the Spinoff?

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Wall Street analysts have different initiations on Kraft Foods Group Inc (NASDAQ:KRFT), after the company decided to spin off its global snack business into a separate publicly traded company, now called Mondelez International Inc (NASDAQ:MDLZ).

Analysts from Barclays Equity Research believe that Kraft Foods Group Inc (NASDAQ:KRFT) has the potential to deliver double-digit returns for shareholders over the next few years, and initiated an “overweight” rating for the stock of the company, with a price target of $51 per share.

Is Kraft Foods or Mondelez Appetizing After the Spinoff?

The analysts believed that Kraft’s top growth target is in line with, or better than, its categories, which allows the company to focus on margin opportunity, cash flow, and returns to shareholders. Second, the research firm’s three separate analyses on the company indicated that Kraft has a margin opportunity of 300 bps-400 bps, within the next 3 years, enabling the company to close its margin gap and achieve a double-digit EPS in the near term. In addition, analysts cited Kraft’s recommendation to distribute a $2.00 dividend for FY2013.

Furthermore, the analysts believe that Kraft has the potential to become a large cap food consolidator in the long-term, with the capacity to justify acquisitions based on synergies/cash flow. Analysts expect the company to deliver above average margin expansion and EBIT growth, and a dividend payout ratio, 50% above peers; and potential increase in M&A.

On the other hand, Robert Moskow, analysts from Credit Suisse Equity Research initiated an “outperform” rating, with a $50 per share target price for Kraft Foods Group Inc. (NASDAQ:KRFT), due to potential dividend growth and strong margin expansion. Moscow expects a 15 percent total return and a 4.2 percent dividend yield to shareholders over the next 12 months. He expects the company to increase its dividend by 7 to 8 percent per year. Kraft’s dividend increase in 2013 will serve as a positive catalyst for the company’s stock. According to him, Kraft’s decision to introduce free cash flow and return capital metrics to the business unit plans is good for the company.

Moskow also identified risks in his analysis including Kraft Foods Group Inc (NASDAQ:KRFT)’s spotty record in execution, the necessity for more reinvestment, the possibility of reduced management flexibility due to high financial leverage, and high dividend payout ratio.

Meanwhile, analysts from Deutsche Bank Equity Research initiated a “hold” rating and $44 price target for Kraft Foods Group Inc (NASDAQ:KRFT), due to the challenging condition within the food industry, particularly the possibility of inflation in 2013.  The analysts believe that investors are attracted to Kraft’s more than 4 percent yield, but they “see limits to valuation beyond just yield”, based on 3x net debt/EBITDA and 100% +FCF used to fund the dividend in 2013.

Some trades of Kraft Foods Group Inc (NASDAQ:KRFT) at Nasdaq and other exchanges were cancelled, due to an unusual increase in its stock price from its $45.55 per share opening price, to $58.54 per share after the market opened on Wednesday.  According to Nasdaq, its “systems performed normally and the industry’s process for handling these issues worked as intended.” The exchange pointed out a broker’s mistake that caused the sudden surge of Kraft’s shares. Nasdaq did not identify the name of the broker.

Shares of Kraft Foods Group Inc (NASDAQ:KRFT) are up by more than 3.5 percent to $46.48 per share during the morning trading on Thursday at Nasdaq.

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