With shares of Kraft Foods (NASDAQ:KRFT) trading around $57, is the company an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let's analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
T = Trends for a Stock’s Movement
Kraft Foods operates food and beverage businesses in North America. The company manufactures and markets food and beverage products, including convenient meals, refreshment beverages and coffee, cheese, and other grocery products. Kraft Foods’s product categories span breakfast, lunch and dinner meal occasions, both at home and in foodservice locations. It sells its products to supermarket chains, wholesalers, supercenters, club stores, mass merchandisers, distributors, convenience stores, drug stores, gasoline stations, value stores, and other retail food outlets. Food and beverage products are essential for the daily lives of consumers, so it is clear the demand will always be there. Now, as consumers and countries around the world see development, Kraft Foods’ products will see increasing demand as the affordability makes them viable options.
T = Technicals on the Stock Chart are Strong
Kraft Foods stock has seen a consistent uptrend since its initial public offering just last year. The stock has seen a powerful run this year that has taken it to all-time high prices. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Kraft Foods is trading above its rising key averages, which signals neutral to bullish price action in the near-term.
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(Source: Thinkorswim)
Taking a look at the implied volatility (red) and implied volatility skew levels of Kraft Foods options may help determine if investors are bullish, neutral, or bearish.
| Implied Volatility (IV) | 30-Day IV Percentile | 90-Day IV Percentile | |
| Kraft Foods Options | 18.3% | 56% | 54% |
What does this mean? This means that investors or traders are buying a significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.
| Put IV Skew | Call IV Skew | |
| June Options | Flat | Average |
| July Options | Flat | Average |
As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.
On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.
E = Earnings Are Mixed Quarter-Over-Quarter
Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Kraft Foods’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Kraft Foods look like and more importantly, how did the markets like these numbers?
| 2013 Q1 | 2012 Q4 | 2012 Q3 | 2012 Q2 | |
| Earnings Growth (Y-O-Y) | -7.32% | -71.02% | 12.86% | N/A |
| Revenue Growth (Y-O-Y) | 2.09% | -10.74% | 2.95% | 0.95% |
| Earnings Reaction | 5.1% | 0% | N/A | N/A |
Kraft Foods has seen mixed earnings and revenue figures over the last few quarters. From these figures, the markets have been happy with Kraft Foods’s recent earnings announcements.
P = Excellent Relative Performance Versus Peers and Sector
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How has Kraft Foods stock done relative to its peers, ConAgra Foods (NYSE:CAG), Hillshire Brands (NYSE:HSH), General Mills (NYSE:GIS), and the sector?
| Kraft Foods | ConAgra Foods | Hillshire Brands | General Mills | Sector | |
| Year-to-Date Return | 26.57% | 18.58% | 25.76% | 21.47% | 19.79% |
Kraft Foods has been a relative performance leader, year-to-date.
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Kraft Foods provides essential food and beverage products to many consumers and businesses looking for quality and affordable items. The stock has surged higher since its initial public offering that occurred just last year to all-time high prices. Over the last few quarters, earnings and revenue numbers have been mixed, which has kept investors in the company happy. Relative to its peers and sector, Kraft Foods has been a year-to-date performance leader. Look for Kraft Foods to OUTPERFORM.
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