Kraft Heinz (KHC)

Total return at 5 years: 8.7%/year = 1.8% appreciation + 6.9% dividend. The target price ($25) is ex-dividend; the $8 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $50 · Multiples $27) exceeds the market price ($22).

Today — fairly valued: at $22 trades ~15.9% below its value discounted to today (~$27); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($25) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$18.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($22) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-17.9%/year) than we project (-1.7%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.1 bn of owner earnings in year 5 (vs ~$2.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on Utilidad neta ajustada (P/E). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

A branded consumer staple in structural decline: valued on P/E over adjusted net income, which gives equity value directly, with no EV-to-equity bridge. Rolling grid: year-0 is the real TTM (revenue of US$24.90bn as of Jun 27, 2026, built by levels from the Q2'26 8-K). GAAP TTM is a loss (−US$3.40bn) from non-cash impairments of goodwill and intangibles: US$9.3bn recognized in FY2025 and another US$7.4bn in Q2'26, which over the half brought goodwill down from US$22.2bn to US$19.7bn and intangibles from US$37.5bn to US$32.4bn. The valuation metric is adjusted net income: US$2.78 per share FY22 → US$2.98 FY23 → US$3.06 FY24 → US$2.60 FY25 → ~US$2.44 in the TTM, or ~US$2.89bn aggregate. Year 1 starts from the guidance the company published on Aug 5, 2026 rather than from the trajectory, reading its two anchors: adjusted EPS of US$2.03 to US$2.09 and adjusted operating income at constant currency of −16% to −18%, with a free-cash-flow conversion of ~110%. But the guidance is for the calendar year while the model's window starts mid-year, so year 1 is built by levels rather than copying the guided year: the second half of 2026 comes out by subtraction (US$0.92 per share, versus US$1.14 reported in the first half) and the first half of 2027 follows the same pace as the path itself, which leaves year 1 at ~US$1.82 rather than the ~US$2.06 of the calendar year. That difference is not stacked conservatism: the step-down is concentrated in the second half because that is where the ~US$700 million of incremental investment versus 2025 falls, along with a ~500 basis-point headwind from lapping lower variable compensation, and copying the calendar-year average would assume the first half of 2027 returns to the 2026 first-half level, which is exactly what the guidance denies. The base scenario takes the midpoint of the guided range and the adverse and favorable scenarios take the extremes, so none of the three starting points is estimated; the recovery from that investment lives in the favorable scenario, the only one that turns back up. Year-1 sales (−1.5%) sit within the −0.5% to −2.0% organic guidance and improve gradually toward +0.5% by year 5. The exit multiple (11.25× base) stays disciplined at the lower end of a dedicated 11-14× band for a structurally declining staple —well below the 16-22× of a healthy one— because the three concurrent decline criteria (negative volume, exhausted pricing, no reinvestment runway) are present; adverse 10× (below the floor, decline does not stop) and favorable 13× (recovers toward the mid-range, without reaching the ceiling). The share count path is flat: the buyback program is suspended —the 8-K states that no shares were repurchased in the quarter, and the half-year total is US$27 million against US$435 million a year earlier— so the ~1% annual reduction the model previously carried no longer has revealed behavior to support it. Cash accumulates because the retention is real and shows up in the cash-flow statement: with the buyback cut and the dividend frozen at US$1.60 per share for four years, the retained flow belongs to the shareholder whether it stays as cash or repays debt, which is where the company says it is going (gross debt fell from US$21.2bn to US$19.0bn over the half). The model does not credit any part of the liquidity increase that comes from issuing new debt.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (EV falls as cash increases). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $25 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $22, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $25 in 5 years plus $8 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $27. Against the current market price ($22), the margin of safety is 15.9% (trades below the maximum → there is margin) and the total return at that price would be 8.7% annually.

• Multiple vs quality. Today's 9×, well below the floor of the own band for a staple in structural decline (11-14×); the valuation uses 11.25×, disciplined at the lower end, not the ceiling.
• Reverse-DCF. Today's price does not require growth — it implies an earnings contraction, consistent with the market discounting more structural deterioration than the real cash currently supports.
• Margin of safety. The base-case return rests on the real retained cash flow and the dividend, not on the market paying a higher multiple — a more defensible source of return than a re-rating.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✕ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (105%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC vs the 10% bar. ROIC ~5.9% on the real total invested capital from the balance sheet (includes the 2015 merger goodwill) — structurally below the bar.
• Margin and stability. Adjusted operating margin ~19.0%, compressing from 20.7% in FY2024 — real pressure, not just accounting noise.
• Cash quality. Real free cash flow (~$3.9bn TTM) is solid and is not distorted by the non-cash impairments: $1,327 million remains retained after the dividend and buyback. Cash nearly doubled during the year, but $942 million of that improvement came from new net debt, not from the flow.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The engine of a packaged-staple business is volume × price/mix. At Kraft Heinz volume falls across all three geographic regions (North America −5.0pp, International Developed −2.8pp, Emerging Markets with mix at just +0.6pp), and consolidated organic growth (−3.4% FY2025) remains negative despite price partially offsetting it (+0.7pp). The price lever, moreover, has been running out year after year (from +8.9pp in 2023 to +1.4pp in 2024 and +0.7pp in 2025) — it can no longer offset negative volume the way it used to. Only Emerging Markets grew, and almost all of it from defensive pricing, not real volume.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (27-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Reported growth (−3.5% FY2025) is negative in both nominal and organic terms — there is no foreign-exchange or M&A component distorting it upward.
• Growth engine. Neither price nor volume sustains consolidated growth: volume falls across all three regions and the price lever has already run out.
• Deceleration and cycle. The projected path does not assume a strong recovery, only a gradual stabilization (from −1.9% to +0.5% by year 5) — consistent with a mature business without a clear volume catalyst.

• Relevant in 10 years (recurrence). Recurring packaged-food consumption, but brand loyalty increasingly competes with private label and volume already falls across all three regions.
• Pricing power. The price lever has run out steadily (from +8.9pp in 2023 to +0.7pp in 2025) while volume remains negative — a signal of weakening pricing power, not brand strength.
• Moat and its direction. Narrow and eroding: $9.3bn of impairments in 2025 and negative volume across all three geographic regions.
• Capital cycle. Mature sector with growing retail consolidation on the buyer's side — bargaining power is shifting toward major retailers, not toward the brand manufacturer.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• !Interest coverage (EBIT / interest)5.3x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 105% of ROIC
• ✕Value creation (ROIC − 10% bar)-4pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.8x — no over-investment
• –Float / working capitalNeutral WC
• ✓Dilution (SBC % of revenue + shares)SBC 0.4% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Total debt ~$21.2bn, with staggered maturities through 2050 — elevated for a staple in decline, but with no signs of breaching debt covenants.
• Coverage and cash. Real free cash flow ~$3.9bn TTM comfortably covers the dividend (~$1.9bn) and leaves room for the reduced buyback and the cash that accumulates.
• Risk of additional impairment. $37,200 million of brands and business units have 20% or less of fair-value excess — a real accounting risk, though not a cash one.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Outside CEO since January 2026 (Cahillane); the detail of executive ownership remains pending from the DEF 14A proxy (not processed in this extraction).
• Capital allocation. Frozen dividend (no increases in four years) plus buybacks cut sharply (from $988M to $234M TTM); the retained portion of the flow (~46%) shows up in the observed cash increase, not in an explicitly declared use.
• Integrity / normalization. The company details in the 10-K notes the impairments and charges that distort GAAP, and precisely reconciles Adjusted Operating Income and Adjusted EPS.

• A case of motivated sellers: the $5.8bn GAAP loss (FY2025/TTM) and the $9.3bn of non-cash impairments produce a loss headline that obscures real cash generation (~$3.9bn of free cash flow TTM) — the type of non-recurring event that punishes the price more than the business justifies.
• The corporate separation paused in February 2026 left an unresolved pending uncertainty, keeping institutional buyers away until the direction becomes clear.
• But there is also a real structural source: volume falls across all three geographic regions, the price lever has already run out, and Walmart accounts for ~21% of sales with growing bargaining power — not all of the discount is perception.

Both sources are present at once: motivated sellers (the GAAP loss headline and the pending uncertainty of the paused separation) and a real structural erosion of the moat (negative volume across all three regions, exhausted price). The 9× price on adjusted earnings appears to discount more structural deterioration than the real cash currently supports, but this is not a riskless bargain: the market is partly right to punish it, and the base-case multiple stays disciplined at the lower end of the decline band, not at the level of a healthy staple.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at +3%/year (+17% total): the margin of safety protects the downside. The bull (+14%/year, +97% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Structural negative volume. The central disconfirming test: volume falls across all three geographic regions with no clear reacceleration in sight.
• Additional goodwill/brand impairments. $37.2bn of brands at risk; a new impairment would not affect cash but would confirm the moat's erosion.
• Uncertain corporate separation. Paused in February 2026; resuming it or abandoning it poorly executed keeps the pending uncertainty over the price.
• Walmart concentration and private label. ~21% of sales in a single customer, with growing bargaining power and private-label pressure on price and mix.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A slow grower, growing -2% — no conclusive PEG to judge the price.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 18% (EBIT/EV) + ROIC 6% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -18% vs our -2%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -5%/yr, bull-scenario ceiling +8%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: intangibles, efficient scale, cost advantage → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -18%, within what we project (-2%) — the story squares with the numbers.