Bank Of America Raises Kraft Foods Price Target

Bank of America raised its price target on Kraft Foods Group Inc KRFT Wednesday from $64 to $66 and maintained a Buy rating.

Analysts led by Bryan S. Spillane expected Kraft “shares to outperform peers over the next 6 months driven by sequentially improved earnings quality starting in 4Q14E and potential for management to announce value enhancing changes to its strategy in early '15.”

Spillane noted that “3Q14 YTD results have been mixed. KRFT is on pace to deliver ~12 percent EPS growth despite gross margins and free cash flow coming in below expectations despite easy comparisons.

“We expect improved performance in 4Q and 1H15 because price increases have stuck and this should boost gross margins allowing more productivity to drop through the P&L. As free cash flow conversion improves it sets up the potential for an increase in cash returned to shareholders next year.”

The analyst report concluded that “the company is in the early stages of a multiyear cycle of productivity gains that should enable it to both increase its marketing spend and simultaneously drop enough to the bottom line to drive consistent mid-single-digit operating profit growth and grow dividends.”

The $66 price target was based on 17.8x the firm's FY16E EPS of $3.72, a premium to its packaged food peers.

Kraft Foods recently traded at $59.97, down 0.22 percent.