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Credit Suisse slashes its price target for Kraft Heinz due to lack of 'product innovation'

Tae Kim
Credit Suisse lowers its rating to underperform from outperform for Kraft Heinz shares, predicting it will report earnings lower than expectations this year.

The difficult year for Kraft Heinz shareholders will not end anytime soon after market share losses to competitors.

Credit Suisse reduced its price target to $55 from $77 for the food company's shares, predicting Kraft Heinz will report lower-than-expected earnings per share this year. The firm also lowered its rating to underperform from outperform for the stock.

"While Kraft Heinz stock has devalued considerably since the start of the year, we believe it will head lower still as consensus sales and EBITDA estimates revise down," analyst Robert Moskow wrote in a note to clients Monday. "We harbor serious doubts about the management team's ability to generate sufficient product innovation to grow its collection of 'retro' brands in highly commoditized categories."

Kraft Heinz shares are down 21.7 percent so far this year through Friday versus the S&P 500's 0.7 percent decline.

Moskow noted the company lost market share in 11 out of 13 key product categories over the past year. He also said private-label products from retailers are hurting Kraft Heinz's sales.

Consequently, Kraft Heinz will be pressured by retailers to lower its prices, the analyst said.

"We believe the lack of sufficient product innovation and promotional support in these categories contributed to the retailers' decisions to expand their private label programs," he wrote. "Without sufficient innovation, the Kraft brands tend to lose their ability to maintain a premium price to private label."

As a result, Moskow lowered his 2018 earnings-per-share estimate for the company to $3.70 from $3.88. The average estimate of Wall Street analysts is $3.80.

Kraft Heinz spokesman Michael Mullen sent the following statement when asked for comment:

"Our strategy is built for profitable growth. We've established clear priorities to grow our brands through focused investments that leverage our innovation capabilities, global reach and consumer-first approach. Our combination of iconic brands and global platforms puts us in a great position to drive profitable growth in markets around the world."