Kraft Heinz: Good M&A May Come To Those Who Wait - Kraft Heinz (NASDAQ:KHC)

The bullish case for owning

Kraft Heinz CoKHC

can be made through expectations of ongoing consolidation within the

packaged food industry, according to analysts at Piper Jaffray. The firm's Michael Lavery upgraded

Kraft Heinz's stock

rating from Neutral to Overweight but with a price target lowered from $92 to $90.

While it is nearly impossible to determine what company/companies Kraft Heinz would pursue in an acquisition, investors should have confidence in the management team's ability to succeed in future deals, Lavery commented in his upgrade note (see Lavery's track record

here

). Management also has a

strong reputation

of not only identifying accretive M&A deals but executing on them.

The timing is also optimal for Kraft Heinz to pursue deals, as a recent pullback in many food stocks gives the company an opportunity to target a company that fits in with its long-term strategic objectives, the analyst continued. Specifically, many packaged food companies have seen their stocks fall 15 to 40 percent from their 2016 peak which makes the math behind a deal "more attractive than they have been" in the past.

Kraft Heinz is likely shopping for a deal that could prove to be 20 to 25 percent accretive to its earnings, add over $2.2 billion in EBIT, generate synergies of $600 million to $1 billion, and $1.4 billion of incremental interest expense.

"Even if our back of the envelope estimates are off, we believe double digit accretion still looks very achievable," the analyst wrote. "Financing costs remain attractive, KHC remains uniquely capable of extracting significant synergies, and lower group valuations help deal economics."

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