Heinz Management Just Gave More Insight Into The Kraft Merger

After meeting with H.J. Heinz Company (NYSE: HNZ)'s management -- CFO Paulo Basilio and Treasurer James Liu -- last week, analysts at Stifel boosted their price target on shares of Kraft Foods Group Inc (NASDAQ: KRFT) from $90 to $95.

They maintained a Buy rating on the stock.

According to a report issued Monday, the meeting "offered a good reacquaintance with the Heinz business and further clarity around its future opportunity through the acquisition of Kraft Foods Group."

A few highlights after the encounter:

• The Kraft Heinz Group will be worth about $28 billion.
• The merger will create one of the most profitable food companies in the world.
• The companies expect $1.5 billion in savings.
• "Revenue Growth: Investors commonly regard 3G [one of Heinz's owners] as extremely focused on margin and cash flow even at the expense of revenue growth. 3G has invested back into its businesses aggressively in the form of marketing and advertising with a focus on efficiency in spending."

Mondelez International Inc (NASDAQ: MDLZ), meanwhile, holds licenses to the Kraft brand overseas. When they expire, these could represent about $1 billion in sales opportunity, the firm says.

The analysts also believe the new company will continue to seek M&A opportunities after consolidating.

Stifel made some adjustments to its model for the combined company "with a number of puts and takes that result in a similar 2017 EPS conclusion - $4.05."

They would note that each $200 million in incremental cost savings from the combined company could add roughly $0.12 to EPS and roughly $3 per share in value.

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