In Focus: Kraft Heinz & Nike
Updated: Aug 12, 2019
Thanks for checking out this week's In Focus, our look into a company, companies, or markets that made the Wall Street news cycle. This week we bring Kraft and Nike in focus.
The Kraft Heinz Company (KHC) experienced a massive sell off on Friday, causing a loss of $16 billion. The $16 billion loss of market capitalization was due to a short list of very bad news.
What's on the List
There is a $15 billion write-down, which is an accounting term to explain a company reducing the value of an asset. There is a 36%reduction to the company's dividend payout; and there is an SEC probe into the company's accounting practices. An SEC subpoena is never a good sign on its own, but mix it in with the other issues and you get $16 billion loss of market cap.
Not What They Used to Be
The $15 billion write down for Kraft Heinz is related to their Kraft and Oscar Meyer brands. What do you know, boxed macaroni and cheese and processed meat with a first name aren't what they use to be. I feel like we're going into the second decade of this worldwide health conscious mindset. As a person that stopped eating meat in the 90s, it was rare in the 90s to find someone doing the same, now they - the non-meat eaters - are every where. But getting past the non-meat eater thing, consumers - who can afford to be - are more conscious than ever about what they eat. What has Kraft Heinz done to appeal to the health conscious consumer? Oranganic Capri Sun, that wasn't the move.
Fighting the Wrong Battle
Since the merger of Kraft foods and Heinz, the companies behind the merger 3G Capital and Berkshire Hathaway have pushed for cost cutting, which they hoped would increase shareholder value. In a time when consumer habits were/are changing, hiding the check book wasn't the best strategy. More research, more development, and more understanding of the evolving diet trends should've been the play. In their attempts to create shareholder value and make shareholders happy, they forgot to make the consumer happy.
At the $34.95 share price, Kraft Heinz is a $42 billion company, it sounds good, but it's not a steal. My thought is to wait and not get in the way of sentiment. The sentiment surrounding Kraft Heinz isn't good, and the stock could lose more value over the coming weeks. There are too many questions surrounding Heinz, two of which are can they turn it around, and do they have the leadership to turn things around? I'm not confident that they can or that they do, Kraft Heinz is an AVOID at this time.
Nike, We've Been Here Before
If you haven't seen the Nike (NKE) sneaker ripping apart on a Duke University basketball player, please look it up. It's been a PR nightmare for Nike once again. Yes, again, and I'm not talking about Colin Kaepernick, I'm specifically speaking of Nike sneakers falling apart.
In early 2014 NBA players Manu Ginobili, Andrew Bogut, and Tony Wroten all had Nike and Jordan brand basketball sneakers fall apart on them in a game. Ultimately it had little to no effect on Nike as a company and as a brand.
Source: Business Insider
The Nike fallout from the most recent exploding sneaker was short lived, the stock price dropped the day following the Duke game, and it traded up the day following the big decline. When it comes to Nike, if the stock pulls back, accumulate shares. The company continues to grow revenue, it is still the leader in the athletic sneaker industry, despite what Wall Street analysts say, and it's not even close.
On my morning runs, the kids I pass walking to school or waiting for the bus, most of them are wearing Nikes or Jordans. Do the experiment yourself, look at what kids and young adults are wearing. Investing by walking around, it works.
Nike is a BUY on a pull back. I feel the stock will hit $100 per share by this time next year. The company has the customer following, the brands, the player ambassadors, and the know-how to keep the train moving forward unlike the first company I talked about in this article. Nike is a Buy on a pull back.
This is where I leave you with an Avoid on Kraft Heinz and a Buy on Nike. Thanks for checking out In Focus.