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Parsad 1 : dealraker 0


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This acquisition is a terrible deal short term and I am not certain how long it will take to really deliver large cost savings. I am also not too happy to see how Irene got this through by effectively shutting down shareholders with no vote anymore.

 

So what are you guys doing? Selling?

 

The stock is still cheap, but nowhere near what it was prior to this acquisition. They made about $2 a share in 2009 and EPS was forecasted around $2.20 for 2010. With Cadbury and assuming a full year, 2010 earnings would be around $2. So instead of a 12.8 P/E, we now have a 14.1. IMO, a P/E of 15-16 for Kraft with or without Cadbury is about all one can hope for. I have a feeling that the Street will take a wait and see attitude which could mean little upside for the next few years.

 

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Think of Kraft stock as a BBB rated Perpetual Bond, (strictly back of the envelope calculation here)

 

Pre Cadbury you had a bond paying 7.1% growing at 10% per year

 

Post Cadbury you have a bond yielding roghly 6.2% growing a little faster than before.  Buffett doesn't like to use synergies in his calculations so I'm not surprised he doesn't think the added growth will make up for the lost yield.  At 28$ it still fits the Peter Lynch stalwart stock criteria and should earn a satisfactory return for its owners over time. 

 

 

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Think of Kraft stock as a BBB rated Perpetual Bond, (strictly back of the envelope calculation here)

 

Pre Cadbury you had a bond paying 7.1% growing at 10% per year

 

Post Cadbury you have a bond yielding roghly 6.2% growing a little faster than before.  Buffett doesn't like to use synergies in his calculations so I'm not surprised he doesn't think the added growth will make up for the lost yield.  At 28$ it still fits the Peter Lynch stalwart stock criteria and should earn a satisfactory return for its owners over time. 

 

 

 

 

 

Kraft may actually get some synergies out of this one if dealraker is correct that Cad. should have been able to have gotten better returns in recent years.

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