UBS downgrades Kraft Heinz as it faces rising inflation, competition from private labels

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Rising inflation is hitting many popular consumer products hard, and Kraft Heinz is no stranger to the trend, according to UBS. Analyst Cody Ross downgraded the stock to a sell rating, citing risks from inflation and private label competition in a note to clients Thursday. “KHC is contending with one of the highest inflationary pressures over the next 12 months, increasing their need to take another round of price this year, which we believe is unlikely in light of WMT’s and TGT’s commentary last week,” Ross wrote. “In addition, the company has pulled back significantly on promotions, competes in categories with greater trade down risk, and has arguably the highest risk to consumer trade down to private label.” Amid these pressures, Ross anticipates organic growth at the company will slow in 2023 and come in below estimates. The bank is also modeling $5.9 billion in adjusted EBITDA for 2023, below the Street’s $6.1 billion expectation. Shares of the food and beverage company have jumped 10% this year but pulled back 7.4% this month. UBS cut its price target on the stock to $34 from $40 a share. That represents a 13.9% downside from Wednesday’s close. “We believe it will be difficult for KHC to pass through additional pricing next year and by that time, KHC will likely be battling trade down pressure as consumers’ budgets are squeezed further,” Ross said. — CNBC’s Michael Bloom contributed reporting

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