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Figure 1: Final Valuation of KHC.
After concluding with the corresponding analysis and completing four valuation models, I have concluded that the fair value of KHC is $31.45. My overall valuation of the company has included a thorough analysis of every aspect of its business model mixed in with its financial statements, proforma forecast statements, and valuation models.
In my opinion, the company is making good growth and revenue, however, it is not reaching its optimal level in which it would be breaking even. For me, the fact that their baseline ROPI resulted in a negative number had a lot to do with this valuation. A negative ROPI indicates the company is not generating enough to cover its breakeven required Net Operating Profit after Tax. Looking at this as an investor is worrying and I will not feel safe investing in a company that has not been reaching its breakeven point. Some could argue that this had to do with the pandemic but after looking at the years 2018 and 2019, the fact is that this negative ROPI has come from way before the pandemic. Indeed, it has worsened after the pandemic, and now it has begun reaching the levels before the pandemic, but it still is a negative ROPI. This is mixed in with the DDM model in which we measure the real income the stock is generating to its investors and the Mckinsey FCF valuation, the final stock price of the 4 of them averaged $31.45.
After, concluding this analysis, I believe that KHC is a good company with pros and cons, however, their financials have not been the best over the past few years resulting in the fair value of the stock being lower than what the stock is priced at. For me, this stock is a Sell, not only because I considered the stock to be overvalued but also because in my opinion in this industry, there are better companies that are safer and have stronger financials which will make the investor feel safer with their investment. KHC is already 11% down YOY meaning that my reasoning behind its overvaluation is most likely correct and for the future I expect the stock to keep going down in price when investors realize that the projected growth is not enough to overcome their situation and that with other competitors who are stronger and more reliable a flight to call is the most probable scenario.
Other Valuation and Estimates Comparison
Other Valuation and Estimates Comparison
FactSet Estimates
FactSet Estimates
Figure 2: Factset estimates and forecast for KHC.
On Figure 2, it is clearly shown how the analysts expect the KHC stock to rise. However, this analysis is based on a forecast analysis of each analyst and is subjective to their qualitative analysis of the company. To get a real view of why they think the stock will rise we will have to analyze their assumptions in their Proforma forecast. However, there is also a small consensus of analysts that are predicting the stock to decline, this analysts most likely have the same forecasts as my valuations.
CNN Estimates
CNN Estimates
Figure 3: CNN analysts expected forecast for KHC
Figure 3, shows the forecast for the KHC stock presented by CNN Analysts. With a high of $45 and a Low of $33. Once again, this analysis is based on qualitative assumptions from different forecasts. However, this analysis does have a lower downside when compared to Factset and is more pessimistic than the Factset analysis.
Get in touch with me: Jherrera4@bryant.edu
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