3 Reasons to Buy Kraft Heinz Stock Like There's No Tomorrow

For Kraft Heinz (NASDAQ: KHC) shareholders, 2024 was likely a year to forget. Weak growth and disappointing earnings from the packaged foods giant pressured the stock, down about 16% over the past year and deeply underperforming stock market benchmarks like the S&P 500 index.

Nevertheless, this type of volatility can sometimes present investors with a compelling opportunity to pick up shares of an industry leader at an attractive price. The start of a new year brings renewed optimism for improved operational performance, which could set the stage for shares to rebound sharply.

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Here are three reasons to buy Kraft Heinz stock now.

1. An improving outlook into 2025

Kraft Heinz is recognized for its extensive portfolio of iconic food and beverage brands, including Kraft, Heinz, Philadelphia, Ore-Ida, Maxwell House, and Jell-O, among many others. The company's reputation for high quality has gained a loyal consumer following worldwide as both household pantry staples and essential ingredients in the food service industry.

That being said, the last couple of years have been historically challenging for Kraft Heinz, which is attempting to navigate a shifting macroeconomic landscape and dealing with the rise of more budget-conscious consumers pushing back against higher pricing. That theme was evident in the company's last reported third quarter (for the period ended Oct. 30), when organic net sales decreased by 2.2% year over year, reflecting lower sales volumes in key segments.

The good news is that despite its top-line weakness, the company is finding some success in generating financial efficiencies in support of profitability margins. Third-quarter adjusted earnings per share (EPS) favorably climbed by 4.2%, highlighting an overall sense of fundamental stability.

Notably, legendary investor Warren Buffett, through Berkshire Hathaway, remains Kraft Heinz's largest shareholder, holding 326 million shares, or nearly 27% of the entire company, suggesting continued confidence in its long-term outlook.

The new year could be the start of that turnaround story. According to Wall Street estimates, Kraft Heinz is expected to get back on track with more consistent profitable growth in the low-single-digit range.

The bullish case is that there is some upside to the current estimates as consumer spending demand, particularly in the core North American market, benefits from a resilient economy and even recent interest rate cuts by the Federal Reserve. Evidence over the next few quarters that Kraft Heinz has left the worst of its operating trends in the past could be the spark the stock needs to sustain a rebound higher.

Data source: Yahoo Finance. YOY = year over year.

2. A fantastic high-yield dividend

Maybe the best reason to buy shares of Kraft Heinz is its fantastic 5.3% dividend yield. That level is well above its industry group average, closer to 4%, from packaged foods peers like Conagra Brands and JM Smucker.

Despite the underwhelming earnings trends, Kraft Heinz continues to deliver significant free cash flow that more than covers the current $0.40 per share quarterly payout, which is an encouraging sign that the distribution is sustainable for the foreseeable future. Comments from management have reaffirmed its commitment to return cash to shareholders, including ongoing stock buybacks.

Whether or not the share price rallies higher right away, shareholders are getting paid to wait, and that's always a good thing.

KHC Dividend Yield data by YCharts

3. KHC's dirt-cheap valuation

The other metric that stands out when looking at Kraft Heinz is the company's price-to-earnings (P/E) ratio, trading at just 10 times the 2024 consensus EPS of $3.03. This earnings multiple marks a deep discount compared to the sector and its packaged food peers like General Mills and Campbell Soup, which trade above 13 times forward earnings.

For investors confident in a turnaround from Kraft Heinz, there's a case to be made that shares are simply undervalued and can command a wider premium as it gets back on track.

KHC PE Ratio (Forward) data by YCharts

My final thoughts

Kraft Heinz still has a lot to prove in what will be a critical 2025. Balancing the uncertainties, I believe there's room to turn bullish on the stock, with the current price near a 52-week low as an excellent buying opportunity. The stock with its high-income component can make a great addition to a diversified portfolio.

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Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends J.M. Smucker. The Motley Fool recommends Campbell's and Kraft Heinz. The Motley Fool has a disclosure policy.