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Kraft Foods


Viking
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How do people feel about Kraft Foods?

 

Current Price = $26.65

2009 Earnings Est = $1.97 (perhaps will come in a little higher)

PE = 13.5

Div = $1.16 = 4.4%

EPS Growth Target (mgmt) = 7-9%

 

Berkshire owns 10% of KFT, purchased largely in Feb 08 at about $29 to $30 / share.

FFH owns KFT, purchased early in 09 at about $27/share.

 

- Altria sold their 80% stake in early 2008.

- Kraft is ATTEMPTING to transition into more of an entrepreneurial company, able to grow its top and bottom line more in line with other top tier packaged goods companies.

- They have just completed a three year restructuring where they spent heavily to exit unprofitable businesses, close facilities and reduce workforce size.

- They are currently bidding to purchase Cadbury, which is currently hurting their share price (on concerns they will overpay).

 

I view Kraft as a possible good core long term holding (instead of holding a bond). Cheap, reasonably stable business, good dividend yield. They should be able to earn $2.00 plus per year going forward. Given his 10% stake, Buffet appears to be exerting some influence regarding strategic direction and financial metrics. The kicker is if the tournaround actually works we get both higher earnings and a higher PE multiple.

 

The wild card is the Cadbury situation. Fortunately, Buffett has made his thoughts know (i.e. do not overpay).

 

Being a Canadian investor, with the CAN$ at $0.94, I am generally neutral on the exchange rate.

 

KFT currently holds a 5% weighting in my portfolio and I am trying to decide if I should move it to 10% (other stallwarts I currently hold include JNJ, BRK & WMT).

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I became interested when FFH bought their shares. 

 

Kraft has one of those balance sheets that cannot be valued other than as a going concern.  Book Value after stripping out Goodwill is negative. 

 

So, It pays 4.4% dividend which is 1% higher than a ten year bond.  The dividend looks secure.  And who in the heck has not used their products this year?  If they get their EPS growth target it looks even cheaper.  I would say it is good for a 40% gain in the near term.

 

The Cadbury deal is definitely a hangover at the moment.  When it looked like the deal had blown up a couple of weeks ago the stock started to rise.  But Mrs. Rosenfeld seems to be well schooled in the Buffett way as best I can tell. 

 

I bought some common in the past couple of months with the intention of keeping them forever in the income earning part of my holdings.  The dividend pays more than the margin interest rates at the moment. 

 

 

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It is one of my core investment as well:

 

the stock appears underpriced on several metrics such as

 

price to sales (50% discount on its 5 year average),

 

Price to earnings (20% discount on its  average). the trailing pe is more like 16.

 

price to book (15% discount)

 

Assuming a little clean up (going on right now) and their efficiency and profit margin should pick up; allowing for a return to normal valuation.

 

Add the moat they have, and you have a "forever hold": the typical equity/bond with an expanding coupon.

 

Cadbury at the price offered should be a plus. I am cadbury aquisition neutral (as I own it as well) and its should be fine on its own as its international business is performing well.

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Guest dealraker

This writer's opinion: Kraft offers the same type probability that many "solid but boring" businesses have offered in recent times- such as Abbott, JNJ, etc.  That probability is 90% that it will do better for the next 5 years than "Mr. Market."  S-n-o-r-e.

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  • 2 years later...

Cadbury's are hella tasty. [/contribution]

 

Agree

 

i like the brands in the Mondelez part of spin off. Wish it was a little cheaper.  I think it will be saddled with a lot of debt. Also I am not sure of the CEO that will be running Mondelez (she s the same person who ran Kraft).

 

Still looking for SEC filing. I think I am putting in the watch pile for now.

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Instructions on how to calculate your cost basis after the tax free spin-off of the N.A. grocery business (KRFT)

 

http://www.mondelezinternational.com/SiteCollectionDocuments/pdf/Mondelez_Kraft_Spinoff_TaxBasisInformation.pdf

 

KRFT and MDLZ are two companies I plan to hold for a long long time and I will try to provide a write-up shortly.  My cost basis is:  KRFT = $27.92 and MDLZ = $17.13.

 

S

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In 2007-8 I used to hold a 35% position in Kraft.  I've been reducing ever since, allocation now at 4%.

 

"Warren Buffett was unhappy with the move, calling it a bad deal – particularly the fact that Kraft was selling its pizza business at nine times earnings ($2.5 billion after taxes for a business with earnings of $280 million – and growing) to purchase Cadbury at a mid-teens multiple (and using stock that Kraft’s own directors were saying was significantly undervalued)."

 

This quote from an article on a different site says it all.  Management definitely cannot be trusted, especially Irene, and as a result I may liquidate MDLZ.  KRFT may be worth hanging on to for now.

 

-CM

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CM

You may be right about Irene, but I'm not sure. MDLZ should be one of the best global snack foods players out there, unencumbered from the slow growing KRFT.  Dominant positions in biscuits, chocolate, gum, etc. and lots of takeover possibilities in the emerging markets scene.

Morningstar believes it has a "wide economic moat".

Anyone done any statistical analysis? 

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