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We came across a bullish thesis on The Kraft Heinz Company (KHC) on Substack by Kostadin Ristovski, ACCA. In this article, we will summarize the bulls’ thesis on KHC. The Kraft Heinz Company (KHC)'s share was trading at $29.46 as of April 17th. KHC’s trailing and forward P/E were 13.04 and 10.83, respectively according to Yahoo Finance.
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Kraft Heinz represents one of Warren Buffett’s most notable missteps in recent decades, offering a valuable case study in the pitfalls of cost-cutting strategies and overpaying for legacy assets. The company was formed in 2015 through a high-profile merger between Kraft Foods and H.J. Heinz, orchestrated by Berkshire Hathaway and 3G Capital. While both brands had deep historical roots and global recognition, the combined entity began life burdened with nearly $30 billion in debt and an overreliance on aggressive cost-cutting for profitability. This strategy, while initially effective in boosting margins, came at the expense of long-term brand vitality, innovation, and supply chain investment—issues that have since hampered growth across key lines such as Oscar Mayer and Kraft-branded products. Despite strong brand equity, the lack of reinvestment left Kraft Heinz vulnerable in a highly competitive industry dominated by global players like Nestlé, Unilever, and Mondelez.
Post-merger, the company struggled to meet lofty expectations. Attempts to drive synergy through scale fell short, and by 2018, Kraft Heinz had even more debt than it started with. Buffett publicly admitted in 2019 that Berkshire had overpaid for Kraft Foods, highlighting the over-optimism in their valuation approach. In response to unsustainable capital allocation practices—including dividend payouts equaling nearly all free cash flow—Kraft Heinz cut its dividend and began a slow deleveraging process. Between 2016 and 2024, the company paid down approximately $10 billion in net debt, aided significantly by asset sales like the natural cheese and nuts businesses. These measures, while stabilizing, reflect a shift from growth to financial repair.
Despite its setbacks, Kraft Heinz remains a substantial cash generator, producing roughly $3 billion in annual free cash flow. Approximately two-thirds is paid out in dividends, with the rest recently allocated to share buybacks—signaling that management, likely with Buffett’s influence, views the current stock price as undervalued. Operating in a low-growth but resilient industry with high barriers to entry, Kraft Heinz appeals to income-focused, risk-averse investors. Its valuation—around $33 per share based on conservative DCF assumptions—suggests modest upside from current levels. While unlikely to deliver high returns, the company’s stable cash flows, reduced debt, and disciplined capital allocation offer defensive appeal. Kraft Heinz may not be a growth story, but it could quietly serve those seeking durability in uncertain markets.