Stock Analysis on Net
Stock Analysis on Net

Kraft Heinz Co. (NASDAQ:KHC)

This company has been moved to the archive! The financial data has not been updated since July 31, 2020.

Present Value of Free Cash Flow to Equity (FCFE)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to equity (FCFE) is generally described as cash flows available to the equity holder after payments to debt holders and after allowing for expenditures to maintain the company asset base.

Intrinsic Stock Value (Valuation Summary)

Kraft Heinz Co., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFEt or Terminal value (TVt) Calculation Present value at 14.02%
01 FCFE0 857
1 FCFE1 862 = 857 × (1 + 0.58%) 756
2 FCFE2 891 = 862 × (1 + 3.37%) 685
3 FCFE3 946 = 891 × (1 + 6.16%) 638
4 FCFE4 1,031 = 946 × (1 + 8.95%) 610
5 FCFE5 1,152 = 1,031 × (1 + 11.74%) 598
5 Terminal value (TV5) 56,478 = 1,152 × (1 + 11.74%) ÷ (14.02% – 11.74%) 29,309
Intrinsic value of Kraft Heinz Co. common stock 32,595
 
Intrinsic value of Kraft Heinz Co. common stock (per share) $26.66
Current share price $34.38

Based on: 10-K (reporting date: 2019-12-28).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.68%
Expected rate of return on market portfolio2 E(RM) 13.79%
Systematic risk of Kraft Heinz Co. common stock βKHC 1.03
 
Required rate of return on Kraft Heinz Co. common stock3 rKHC 14.02%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rKHC = RF + βKHC [E(RM) – RF]
= 4.68% + 1.03 [13.79% – 4.68%]
= 14.02%

FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Kraft Heinz Co., PRAT model

Microsoft Excel
Average Dec 28, 2019 Dec 29, 2018 Dec 30, 2017 Dec 31, 2016 Dec 31, 2015
Selected Financial Data (US$ in millions)
Dividends declared, common stock 1,959 3,048 2,988 2,862 2,064
Dividends declared, Series A Preferred Stock — — — 180 900
Net income (loss) attributable to Kraft Heinz 1,935 (10,192) 10,999 3,632 634
Net sales 24,977 26,268 26,232 26,487 18,338
Total assets 101,450 103,461 120,232 120,480 122,973
Shareholders’ equity 51,623 51,657 66,034 57,358 57,685
Financial Ratios
Retention rate1 -0.01 — 0.73 0.17 —
Profit margin2 7.75% -38.80% 41.93% 13.03% -1.45%
Asset turnover3 0.25 0.25 0.22 0.22 0.15
Financial leverage4 1.97 2.00 1.82 2.10 2.13
Averages
Retention rate 0.30
Profit margin 4.49%
Asset turnover 0.22
Financial leverage 2.00
 
FCFE growth rate (g)5 0.58%

Based on: 10-K (reporting date: 2019-12-28), 10-K (reporting date: 2018-12-29), 10-K (reporting date: 2017-12-30), 10-K (reporting date: 2016-12-31), 10-K (reporting date: 2015-12-31).

2019 Calculations

1 Retention rate = (Net income (loss) attributable to Kraft Heinz – Dividends declared, common stock – Dividends declared, Series A Preferred Stock) ÷ (Net income (loss) attributable to Kraft Heinz – Dividends declared, Series A Preferred Stock)
= (1,935 – 1,959 – 0) ÷ (1,935 – 0)
= -0.01

2 Profit margin = 100 × (Net income (loss) attributable to Kraft Heinz – Dividends declared, Series A Preferred Stock) ÷ Net sales
= 100 × (1,935 – 0) ÷ 24,977
= 7.75%

3 Asset turnover = Net sales ÷ Total assets
= 24,977 ÷ 101,450
= 0.25

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 101,450 ÷ 51,623
= 1.97

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.30 × 4.49% × 0.22 × 2.00
= 0.58%

FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (42,032 × 14.02% – 857) ÷ (42,032 + 857)
= 11.74%

where:
Equity market value0 = current market value of Kraft Heinz Co. common stock (US$ in millions)
FCFE0 = the last year Kraft Heinz Co. free cash flow to equity (US$ in millions)
r = required rate of return on Kraft Heinz Co. common stock

FCFE growth rate (g) forecast

Kraft Heinz Co., H-model

Microsoft Excel
Year Value gt
1 g1 0.58%
2 g2 3.37%
3 g3 6.16%
4 g4 8.95%
5 and thereafter g5 11.74%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 0.58% + (11.74% – 0.58%) × (2 – 1) ÷ (5 – 1)
= 3.37%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 0.58% + (11.74% – 0.58%) × (3 – 1) ÷ (5 – 1)
= 6.16%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 0.58% + (11.74% – 0.58%) × (4 – 1) ÷ (5 – 1)
= 8.95%