Stifel Downgrades Kraft Heinz and J.M. Smucker

Investing.com — Stifel analysts have downgraded Kraft Heinz (NASDAQ:KHC) and J.M. Smucker (SJM) from Buy to Hold, citing weak volume recovery and increased reinvestment needs in a recent note.

Analyst Insights

The analysts stated, "Our downgrade reflects a lack of near-term catalysts, softer volume recovery relative to peers, and potential for greater reinvestment requirements to improve volume growth."

Stifel expressed caution regarding the broader food sector, while maintaining a Neutral weighting despite food stocks trading at a significant discount to the S&P 500. The group trades at a 30% discount, placing it in the 6th relative percentile.

Revenue Recovery Concerns

Analysts predict an uncertain pace of revenue recovery and increasing promotional risks warranting investor caution.

Looking to 2024, Stifel forecasts a 1% organic sales increase and 3% EPS growth, aided by slight margin expansion. Nevertheless, volume recovery is anticipated to remain “choppy and portfolio dependent.”

Cost Considerations

The analysts pointed to cocoa inflation as a primary input cost driver but expect non-cocoa costs to stabilize. They noted, "Input cost inflation has inflected higher due to significant cocoa inflation. We now estimate mid-single digit inflation in 2024," with only targeted price increases anticipated along with a projected 60-basis point margin expansion for the year.

Competition and Market Trends

Stifel also cautioned about rising competition from private-label brands, which have gained 60 basis points of market share this year, and may continue expanding if economic conditions deteriorate.

Investment Opportunities

Despite the challenges, Stifel identified select opportunities, upgrading its target price for Lamb Weston from $65 to $80, and reaffirming Buy ratings for several companies, including BellRing Brands (NYSE:BRBR), General Mills (NYSE:GIS), and Post Holdings (NYSE:POST).

The firm advised investors to be selective, focusing on stocks with stronger growth profiles.