BofA Securities analyst Peter T. Galbo downgraded Kraft Heinz Co (NASDAQ:KHC) from Buy to Underperform and lowered the price forecast from $36.00 to $30.00 after reviewing the fourth-quarter FY24 results and the underwhelming FY25 outlook.

The decision to downgrade at these levels may not seem bold, but the analyst foresees limited organic sales growth in the next 12 months.

Unlike peers in the food sector like Hershey Co and Mondelez International Inc, who have adjusted their EPS forecasts for FY25, KHC is still facing revenue challenges, per the analyst.

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The analyst has revised 2025-2026E EPS estimates down from $2.97 and $3.13 to $2.65 and $2.70, respectively, with a new 2027E EPS forecast of $2.75.

Since the analyst’s previous ‘Buy’ recommendation, progress on KHC’s two highest-priority platforms, “Accelerate” and “Protect,” has been disappointing.

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The “Accelerate” initiatives, such as Taste Elevation, Easy Ready Meals, and Substantial Snacking (which represent about two-thirds of global sales), which are core to driving KHC’s 2-3% organic sales growth, have slowed significantly in recent quarters.

Challenges in categories like condiments (Mayo), Mac & Cheese, and Lunchables are likely to persist until at least the second half of 2025.

Any positive revenue growth in 2025 is likely to come from KHC’s lower-priority “Balance” platform, particularly through coffee price increases, which the analyst doesn’t see as a strong solution.

The analyst has been optimistic about the potential advantages of selling Oscar Mayer. Although a sale still seems logical for KHC, due to the negative impact on organic sales, the company recorded a $1.4 billion impairment on the brand in the fourth quarter.

The challenges in the deli category, stemming from a competitor issue, and the subdued valuations of peers could reduce the impact of a sale, opined the analyst.

The analyst’s $30 price forecast is based on 11x P/E multiple (prior prior 12x) on the CY26 EPS estimate.

Price Action: KHC shares are trading higher by 0.90% at $28.88 at the last check Thursday.

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