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 the Firm (FCFF)

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 the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Kraft Heinz Co., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 9.94%
01 FCFF0 3,732
1 FCFF1 3,715 = 3,732 × (1 + -0.45%) 3,379
2 FCFF2 3,745 = 3,715 × (1 + 0.81%) 3,099
3 FCFF3 3,823 = 3,745 × (1 + 2.08%) 2,877
4 FCFF4 3,951 = 3,823 × (1 + 3.34%) 2,704
5 FCFF5 4,133 = 3,951 × (1 + 4.60%) 2,573
5 Terminal value (TV5) 80,981 = 4,133 × (1 + 4.60%) ÷ (9.94% – 4.60%) 50,414
Intrinsic value of Kraft Heinz Co. capital 65,046
Less: Debt (fair value) 31,100
Intrinsic value of Kraft Heinz Co. common stock 33,946
 
Intrinsic value of Kraft Heinz Co. common stock (per share) $27.77
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.

Weighted Average Cost of Capital (WACC)

Kraft Heinz Co., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 42,032 0.57 13.76%
Debt (fair value) 31,100 0.43 4.78% = 6.44% × (1 – 25.72%)

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

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 1,222,578,592 × $34.38
= $42,032,251,992.96

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (27.40% + 8.90% + 28.60% + 27.50% + 36.20%) ÷ 5
= 25.72%

WACC = 9.94%

FCFF Growth Rate (g)

FCFF 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)
Interest expense 1,361 1,284 1,234 1,134 1,321
Net income (loss) attributable to Kraft Heinz 1,935 (10,192) 10,999 3,632 634
 
Effective income tax rate (EITR)1 27.40% 8.90% 28.60% 27.50% 36.20%
 
Interest expense, after tax2 988 1,170 881 822 843
Add: Dividends declared, Series A Preferred Stock — — — 180 900
Add: Dividends declared, common stock 1,959 3,048 2,988 2,862 2,064
Interest expense (after tax) and dividends 2,947 4,218 3,869 3,864 3,807
 
EBIT(1 – EITR)3 2,923 (9,022) 11,880 4,454 1,477
 
Commercial paper and other short-term debt 6 21 460 645 4
Current portion of long-term debt 1,022 377 2,743 2,046 79
Long-term debt, excluding current portion 28,216 30,770 28,333 29,713 25,151
Shareholders’ equity 51,623 51,657 66,034 57,358 57,685
Total capital 80,867 82,825 97,570 89,762 82,919
Financial Ratios
Retention rate (RR)4 -0.01 — 0.67 0.13 -1.58
Return on invested capital (ROIC)5 3.61% -10.89% 12.18% 4.96% 1.78%
Averages
RR -0.19
ROIC 2.33%
 
FCFF growth rate (g)6 -0.45%

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).

1 See details »

2019 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,361 × (1 – 27.40%)
= 988

3 EBIT(1 – EITR) = Net income (loss) attributable to Kraft Heinz + Interest expense, after tax
= 1,935 + 988
= 2,923

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [2,923 – 2,947] ÷ 2,923
= -0.01

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 2,923 ÷ 80,867
= 3.61%

6 g = RR × ROIC
= -0.19 × 2.33%
= -0.45%

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

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (73,132 × 9.94% – 3,732) ÷ (73,132 + 3,732)
= 4.60%

where:

Total capital, fair value0 = current fair value of Kraft Heinz Co. debt and equity (US$ in millions)
FCFF0 = the last year Kraft Heinz Co. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Kraft Heinz Co. capital

FCFF growth rate (g) forecast

Kraft Heinz Co., H-model

Microsoft Excel
Year Value gt
1 g1 -0.45%
2 g2 0.81%
3 g3 2.08%
4 g4 3.34%
5 and thereafter g5 4.60%

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)
= -0.45% + (4.60% – -0.45%) × (2 – 1) ÷ (5 – 1)
= 0.81%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= -0.45% + (4.60% – -0.45%) × (3 – 1) ÷ (5 – 1)
= 2.08%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= -0.45% + (4.60% – -0.45%) × (4 – 1) ÷ (5 – 1)
= 3.34%