Kraft Heinz: Undervalued And Fighting For Market Share

2026-05-28 23:59:28 ET

Investment Thesis

Kraft Heinz ( KHC ) has been losing market share in the US for some time now. Turnaround efforts do not guarantee a reversal, and this period of change makes predicting Free Cash Flows "FCF" difficult, especially further into the future. In the past ten years, FCF trended like a cyclical business. In many instances, this was driven by changes in working capital, particularly inventory levels, as opposed to changes in the sales cycle, which still inherits the defensive characteristics of the consumer staples industry. I take advantage of this unique FCF trend for an important technical reason - averaging FCF margin. The average FCF margin in the past ten years is 10%, below the Q1'26 margin of 12.5%. However, using this average serves two purposes. First, it grounds the forecast of FCF margins based on Wall Street revenue estimates. Secondly, it captures the potential for further loss of market share in the short run, as KHC fights to maintain its market position....

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