Stock Watch
Kraft Foods: Cheap Eats
Sentiment has soured toward the world's biggest snack maker -- some say unfairly so. Still, shares look bargain priced.
March 13, 2003
Spun off from Altria in June 2001, Kraft Foods (KFT) made a delicious debut on Wall Street.
But shareholder sentiment has soured in recent weeks toward the world's largest manufacturer of sandwich meats, cheeses, cookies, crackers and other lines of processed foods (think Jell-O, Tang and Miracle Whip). Kraft got mired in the accounting scandal unleashed by Dutch grocer Ahold, which may have inflated its balance sheet by overbuying from suppliers. Investors are worried that implications from the investigation may slow Kraft's future sales. But at least one analyst, Lehman Brothers' Andrew Lazar, says the hubbub is unwarranted. Just 5%, or $1.7 billion, of Kraft's total sales are targeted toward Ahold's institutional customers, he says.
Recent troubles may have put Kraft in value territory. At $28, the stock is 36% off its 52-week high and trades at just 13 times the 2003 consensus earnings estimate of $2.13 per share. Analysts expect 10% earnings growth, on average, over the next three to five years, giving Kraft a slim PEG ratio of 1.2.
The stock is also a top holding of the stand-out performing Excelsior Value & Restructuring fund (see "Five Funds for the Long-Term").
-- Elizabeth Frengel
