RBC raises Kraft Foods price target as merger with 3G and Heinz offers multiple avenues for valuable synergies

On Thursday RBC Capital Markets issued a report on Kraft Foods Group Inc.

after the announcement of the Kraft-Heinz merger. RBC is maintaining Kraft's Outperform rating and are raising their price target from $72 to $92. David Palmer and Christopher Carril, analysts at RBC Capital Markets, wrote, " We believe that there is upside to identified synergy targets ($1.5B) and our estimates imply 5 percent underlying EBITDA growth along with $2B in synergies by 2017. Furthermore, we believe valuation should reflect further M&A optionality... We also believe that at some point in the future, Kraft Heinz will seek greater international exposure and scale." By merging with Kraft, 3G and Heinz are merging with a food company with a concentration in the highest food margin market in the world. 3G has had a track record of driving out costs through its own cost discipline before any true synergies and analysts are optimistic that they can repeat the same performance, bringing value to shareholders. RBC believes that Kraft-Heinz's biggest need will be growth internationally, particularly developing market scale in non-temperature controlled distribution. Kraft Foods Group Inc. closed Wednesday at $83.17.