On the Jan. 27 episode of The Morning Filter, David Sekera and Susan Dziubinski discuss Berkshire Hathaway’s BRK.B new filing that suggests it’ll soon part ways with Kraft Heinz KHC. In this excerpt from the show, Sekera explains what investors need to know about the investing giant’s departure from the stock, and he answers his audience’s question about whether he thinks that Kraft Heinz is a value trap (all returns in this article are measured on a US dollar basis).
Should Investors Worry About Berkshire Exiting Kraft Heinz?
Susan Dziubinski: One of your former picks, Kraft Heinz, which is, of course, KHC, was in the news last week because a new filing from Berkshire Hathaway suggested that the firm would be selling its position in the stock. What does Morningstar make of that news?
David Sekera: I mean, first of all, they’re selling. I think what you need to do is take what I say with a grain of salt. Warren Buffett, certainly one of the greatest investors ever, is one of the richest men in the world. I’m not. So, like I said, take this with what you. I think there are really two aspects to consider with what’s going on here. The first is going to be valuation. And the second is technically what is that going to do to the stock and how it’s going to trade. From a valuation perspective, we didn’t make any change to our intrinsic value. It’s still a 5-star-rated stock, trades at over a 50% discount to our long-term intrinsic valuation.
In perspective, the company’s trading at 8.0 times trailing earnings, trades at like 10.2 times enterprise value/EBITDA. Pretty low multiples as far as that goes. As far as the technical implications on the stock, they’re selling over 25% of the company’s stock outstanding. It’s really going to depend on how fast they want to liquidate this position. How much do they care about the price that they’re going to get versus how quickly they just want to get out of this name? So, I think this is one where [Berkshire CEO] Greg Abel, he just may want to get out of this loser overall. The stock has had a long-term downward trend. It just might be a case of portfolio manager exhaustion, where he’s just telling his trading desk, “Just get me out.” I just don’t want to be in this one anymore. There’s definitely going to be an overhang on the stock until that position is liquidated.
From a trading point of view, if you’re a trader, why would you buy this? Why would you bid when you know that as soon as you buy some, there’s going to be more coming out right behind it? I think a lot of people are going to take the perspective of sitting back and letting the stock come to them. Until we find out that they’re done selling, whatever it is that they’re going to sell. And once that happens, I think it should be very well-positioned, but it’s definitely going to be an overhang on how this stock trades for months, if not quarters to come.
Is Kraft Heinz a Value Trap?
Dziubinski: Our question of the week from a viewer named Steve is also about Kraft Heinz. Steve wants to know whether the company is a worthwhile long-term holding or is it a value trap, specifically for someone who’s looking for good dividends for the long haul. What say you, Dave?
Sekera: I specifically reached out to [Morningstar director of consumer equity research] Erin Lash with this question to get her response. And, in her mind, not a value trap. The company has a portfolio of brands. They lead within the categories in which they compete. The company’s focus on innovation has profitably improved sales over time. Some specific examples that she gave were improvements on the mac and cheese business, the spreads business. Things like Capri Sun and Lunchables have all done very well. Overall, the company maintains a very healthy balance sheet. And it’s one with, as you know, you get a very high dividend yield. So, it’s a stock where you get paid to wait until the market realizes the value that’s here.
Now, as far as whether or not it’s a value trap, I’m just going to run through our model and our forecast. And the investors can make up their own mind. From a revenue perspective, we’re only looking for 1.3% top-line growth here in 2026, averages 2.5% growth from 2027 to 2029. I’d say less than inflation growth this year, kind of inflationary growth the next three years thereafter. From an operating margin in 2025, it looks like the company is going to come in at 19.2%. That’s very low. I mean, the company only ever printed lower operating margins in 2022 and 2014. And there were specific catalysts that caused them to have low operating margins those years. If I go back over a further or longer time history, over the past 10 years, that operating margin has averaged 21.9%. percent. It has been low, only 20% for the past three years, which has brought that long-term average down. We’re forecasting 19.7% in 2026 and averaging 20.4% in 2027 to 2029. So, we’re not looking for any big heroic increase in sales, not looking for any J-curve in operating margins. Really, it’s just much more of an ongoing normalization story.
Read Morningstar’s full report on Kraft Heinz.
From an earnings point of view, we’re looking for USD 2.51 for 2025. Looking for that to increase steadily through 2029, getting up to USD 3.57. So, essentially, a 9% compound annual growth rate. Looking at the company stock trading at 9 times 2025 earnings, 8 times our 2026 earnings estimate. If you think this is a value trap, in my mind, that means that you need to expect that not only is the company not going to grow from a revenue perspective, but you also then have to assume the operating margins are not going to normalize, that they’re going to stay at these low levels for years to come. So, I think it’s one of those ones where you have to have your own view. But just any kind of normalization here makes this stock look very attractive to us.
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