Kraft Heinz's Value Play Hinges on Split Execution Amid Persistent Headwinds

What happened

Kraft Heinz has severely underperformed the market over five years, with a -11% total return versus the S&P 500's 98%, reflecting investor skepticism around its growth prospects. The company is now pursuing a tax-free separation into two entities—Global Taste Elevation and North American Grocery—targeted for H2 2026, alongside a CEO change, aiming to unlock value through more focused operations. DeepValue's BUY rating supports this, citing a depressed ~9.2x P/E multiple and ~6% dividend yield as attractive, underpinned by durable brand assets and ample liquidity from an undrawn $4.0bn facility. However, persistent challenges like North America volume pressure, commodity volatility, and execution risks around the split cloud the outlook, requiring careful scrutiny beyond management's optimistic portrayals. Ultimately, the stock's re-rating depends on delivering volume stabilization and clean separation milestones, with recent catalysts adding urgency but not eliminating fundamental risks.

Implication

The planned separation offers a tangible catalyst for multiple expansion if executed cleanly, allowing each business to align with more appropriate peer comparables and potentially unlocking hidden value. Current valuation provides a margin of safety through a high dividend yield and strong liquidity, buffering against near-term volatility while offering total return support. Key upside drivers include stabilizing North America organic sales, achieving separation milestones on schedule, and maintaining margin resilience amid commodity and FX pressures. Failure to address volume erosion or any delays or cost overruns in the split could sustain the discounted multiple and lead to further underperformance, validating investor skepticism. Therefore, while the setup is favorable for patient investors, it necessitates vigilant tracking of quarterly results, impairment risks, and separation progress to avoid value traps.

Thesis delta

The new article reinforces the DeepValue BUY thesis by highlighting the CEO change and split as near-term catalysts, but it does not shift the fundamental view. It underscores that investor skepticism remains high, and any positive re-rating is contingent on successful execution, rather than introducing new bullish factors beyond the report's existing analysis.