Kraft Heinz's stock looks like it has bottomed out, one analyst says

Morgan Stanley upgraded Kraft Heinz to "equal weight," asserting the stock has bottomed out and its valuation is now "reasonable" following a significant decline. The planned separation into two distinct public companies—Global Taste Elevation Co. (focused on high-growth emerging markets and food service) and North American Grocery Co.—is expected to limit downside risk and unlock future growth, despite anticipated near-term earnings pressure from input costs. This strategic move, which saw KHC shares rise 2.3% on Wednesday, could also signal broader industry structural changes.

Analysis

Morgan Stanley has upgraded Kraft Heinz (KHC) to 'equal weight' from 'underweight', signaling a belief that the stock has bottomed out and now trades at a 'reasonable' valuation following a significant price decline. The stock reacted positively, rising 2.3% to $26.63, though this followed a 7% drop on the previous day and the stock remains an underperformer year-to-date, up 3.7% versus the S&P 500's 9.4% gain. The core of this revised outlook is the planned separation of the company into two publicly traded entities by the end of 2026, a move the analyst believes will limit downside risk. The split will create 'Global Taste Elevation Co.', a $15.4 billion sales entity with brands like Heinz ketchup and Philadelphia, targeting over 3% long-term organic growth through emerging markets and food service. The second entity, 'North American Grocery Co.', will be a $10.4 billion business with brands like Oscar Mayer and Lunchables, competing directly with other packaged-food giants. Despite this structural catalyst, near-term headwinds persist; fiscal 2026 earnings per share are expected to face pressure from higher input costs and the necessity for increased brand investment amid 'weak absolute trends' in North American retail.

Key Decisions for Investors

• Investors may consider the current valuation as a potential entry point, as Morgan Stanley's upgrade suggests the negative factors are now largely priced in and the planned corporate separation is expected to provide a floor for the stock.
• Portfolio managers should prepare to evaluate Kraft Heinz as two distinct future investments: a higher-growth global business and a more mature, dividend-focused North American grocery company, each with a different risk-reward profile.
• It is prudent to remain cautious on near-term earnings performance, as guided EPS pressure from input costs and brand investment could limit share price appreciation until the corporate split nears completion.
• Consider the strategic split as a potential catalyst for the broader consumer packaged goods sector, monitoring for similar restructuring moves from competitors like General Mills and Conagra Brands.