Kraft Heinz stock (KHC) has absolutely cratered in a stunning turn of events. In fact, it has left investors completely shocked after reporting a big loss in Q4 2018, fueled by an enormous $15.4 billion writedown to a number of its brands. Kraft Heinz stock fell apart, the entire story has changed. There is little to debate on this issue. The company also disclosed an investigation by the SEC into its accounting practices. It was a complete disaster. We interpret this as a no touch situation until the stock is in the $20 range.
The news is really devastating. The market sent shares tumbling in the wake of the news, and as well it should be. We have been hearing calls to buy shares at $35. While we might normally see value here, do not forget the company cut its dividend, and that is a major red flag. Kraft Heinz stocki is not to be touched. The world’s fifth-largest food and beverage company may very well unsettle investors’ stomachs even further. A closer inspection of both the writedown and the SEC investigation suggests that things may actually be worse than you think:
At $15.4 billion, it is the seventh largest impairment since 2009. Just wow. The writedown came from two sources: $8.3 billion from an intangible asset writedown of the Kraft and Oscar Mayer brands and $7.1 billion from a goodwill impairment to its North American refrigerated and retail business.
However the problem really reveals that accounting and faith in management is gone. The writedown was not the only thing that blindsided investors this week.
Kraft Heinz also disclosed that its accounting practices had come under SEC scrutiny and received a subpoena from the regulator. The company stated that it had launched its own internal investigation in response to the SEC’s probe. Not good.
Kraft Heinz has promised a return to strong revenue growth and improving margins, with a focus on improving its brands, reasserting its market position, and forging new opportunities. But we have little faith.
It is hard for us to admit this as this is a stock that we traded for significant profit over at our subscriber service BAD BEAT Investing for gains of double-digits each time. We also called it one of the safer dividends out there though just a year ago. Now here we are. While we have suggested to our members a few ways to play it and profit here, we think that you need to wait for the $20 range to pick up shares at a favorable yield and multiples we would see value in.