Deutsche Bank cuts Kraft Heinz rating following Q3 results

Investing.com -- Deutsche Bank downgraded Kraft Heinz (NASDAQ:KHC) to a Hold rating after the company's third-quarter 2024 results, setting a new price target of $35, down from $39.

Analysts cite "reduced growth and profitability assumptions into FY25 and over the medium-term," noting a prolonged timeline for meaningful improvements.

While Kraft Heinz's Q3 results were largely in line with expectations, the company lowered its FY24 outlook to the lower end of previous projections, signaling "ongoing pressure."

Deutsche Bank (ETR:DBKGn) noted that the company's management highlighted a slow recovery for the Lunchables brand, which has been hampered by supplier issues, as well as rising inflation in coffee and dairy—expected to persist into 2025.

The bank emphasized that these challenges indicate a challenging U.S. retail environment, with 2025 unlikely to be an "on-algorithm" year.

Deutsche Bank also pointed to repeated "top-line and supply chain executional missteps," as Kraft Heinz contends with a complex portfolio of over 200 brands.

The frequency of these challenges "erode[s] confidence and raise[s] incremental concerns about the company's ability to achieve its long-term algorithm," analysts said, questioning the consistency of execution without major changes in capabilities.

On the positive side, the bank noted encouraging signs in emerging markets and away-from-home channels. However, it remains cautious, expressing concerns that any new operational issues could impact near-term earnings, as Kraft Heinz may need to invest more in brand equity and supply chain improvements.

Conversely, Deutsche Bank says the company might cut back on planned investments to preserve profits, potentially affecting longer-term growth.

The bank concluded that it is waiting for "more definitive signs of consistent improvement" before a possible reassessment of the stock's rating.