Kraft Heinz de­but may sig­nal more strength ahead

Financial Mirror (Cyprus) - - FRONT PAGE -

The Kraft Heinz Co. (NAS­DAQ: KHC) opened its first day of trad­ing on Mon­day at $71 a share and rose as high as $74.29 in the first hour of trad­ing to end the day at $73.60. Vol­ume to­taled around 950,000 shares af­ter the first 90 min­utes or so of trad­ing. The signs are that the stock can go much higher. Credit Suisse’s an­a­lyst ini­ti­ated cov­er­age with an Out­per­form rat­ing and a price tar­get of $85 a share. Stifel has rated the stock a Buy with a price tar­get of $80. Last week, Fitch Rat­ings boosted its long-term is­suer de­fault rat­ing on the com­pany that is now Kraft Heinz from BB- to BBB-. The rat­ing cov­ered both old Kraft and old Heinz debt, now rolled into a sin­gle rat­ing.

War­ren Buf­fett’s Berk­shire Hath­away Inc. (NYSE: BRKA) and 3G Cap­i­tal owned Heinz be­fore the merger, hav­ing paid $11 bln for the com­pany in 2011. Berk­shire Hath­away now owns a stake of roughly 26% in the new com­pany, and that is worth about $24 bln, ac­cord­ing to Bloomberg News. It is Buf­fet’s sec­ond largest hold­ing, be­hind only his $26 bln in­vest­ment in Wells Fargo.

For­mer Kraft share­hold­ers own 49% of the new com­pany and for­mer Heinz share­hold­ers own 51%. Kraft share­hold­ers also re­ceived a spe­cial div­i­dend of $16.50 in cash plus one share of the new com­pany for each share of Kraft stock they owned. The ag­gre­gate amount of the spe­cial div­i­dend is ap­prox­i­mately $10 bln and was funded by 3G Cap­i­tal and Berk­shire Hath­away.

It will take a while for Kraft Heinz to find its value, but as Credit Suisse noted, 3G Cap­i­tal is known for wring­ing out costs pri­mar­ily by low­er­ing head­count. As the new CEO (from 3G Cap­i­tal) starts work, and six of 11 board seats be­long­ing to Berk­shire and 3G Cap­i­tal are enough to pur­sue a proven ap­proach to cost-cut­ting, shares of Kraft Heinz could be in for some solid growth over the sec­ond half of this year. (Source: 24/7 Wall

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