Is the Recent Selloff in Kraft Heinz (KHC) a Strategic Entry Point for Value Investors?

The recent selloff in Kraft Heinz (KHC) has sparked debate among investors about whether the stock's depressed valuation represents a compelling opportunity or a cautionary tale. With a market price of $24.34 per share as of November 2025, KHC trades at a significant discount to intrinsic value estimates derived from discounted cash flow (DCF) models and price-to-sales (P/S) benchmarks. However, persistent operational challenges and bearish narratives about volume declines and margin pressures complicate the calculus. This analysis evaluates the valuation dislocation, intrinsic value potential, and conflicting narratives to determine whether the selloff is a strategic entry point for value investors.

DCF Analysis: A Wide Range of Intrinsic Value Estimates

DCF models suggest KHC is undervalued, but the magnitude of the discount varies widely depending on assumptions. A base-case DCF model estimates an intrinsic value of $37.32 per share, implying a 35% upside from the current price. More aggressive projections, such as a two-stage DCF model, suggest a fair value of $68.79 per share, representing a 63.6% discount to intrinsic value. Another analysis pegs the intrinsic value at $81 per share, further widening the gap.

These discrepancies stem from assumptions about growth rates and discount rates. KHC's weighted average cost of capital (WACC) is estimated at 6.26%, with a cost of equity of 7.07%, though some models adjust for risk premiums or use a 6.55% cost of equity according to analysis. Free cash flow (FCF) projections also vary: KHC generated $3.16 billion in FCF in 2024, up 6.65% from 2023, and is projected to reach $4.0 billion by 2035 according to forecasts. A terminal growth rate of 1.0% is commonly assumed in DCF models, but sensitivity to this parameter can significantly alter outcomes.

Price-to-Sales Ratios: Modest Undervaluation in a Weak Sector

KHC's P/S ratio of 1.18x is below its proprietary Fair Ratio of 1.39x, suggesting modest undervaluation on a sales multiple basis. This is particularly notable given the broader food industry's weak valuation metrics. As of 2025, the industry's average P/S ratio is 0.75x to 0.99x, while KHC's 1.18x exceeds this range. However, the company's P/S is still below the peer group average of 1.78x, indicating it trades at a discount to its direct competitors.

The Food Processing sub-industry has a P/S ratio of 1.35x according to industry data, further highlighting KHC's relative affordability. Yet, this metric must be contextualized with the sector's broader struggles: food industry earnings have declined 15% annually over the past three years, while revenue growth has averaged 5.5% according to industry reports. This earnings divergence raises questions about whether KHC's sales growth is translating into profitability.

Bullish vs. Bearish Narratives: A Clash of Optimism and Pessimism

Bullish arguments center on KHC's undervaluation and operational resilience. DCF models highlight the company's ability to generate robust FCF despite a challenging macroeconomic environment. A recent partnership or brand refresh initiative has been cited as a catalyst for margin expansion and innovation uptake. Additionally, KHC's P/S ratio suggests it is trading at a discount to both industry and peer benchmarks, offering a margin of safety for long-term investors.

Bearish concerns, however, focus on structural headwinds. KHC reported a 3.0% decline in net sales for 2024, with volume decreases in key markets like North America. Operating income fell 63.2% year-over-year due to non-cash impairment losses, which analysts attribute to underperforming brands and integration challenges. Furthermore, execution risks-such as weak consumer response to new products-could delay margin recovery. These factors have led some to question whether KHC's FCF growth is sustainable.

Conclusion: A Calculated Bet on Operational Turnaround

The selloff in KHC presents a mixed picture for value investors. On one hand, DCF models and P/S ratios suggest the stock is meaningfully undervalued, with intrinsic value estimates ranging from $37.32 to $81 per share. On the other, operational challenges-including volume declines and impairment charges-pose risks to these projections.

For investors with a long-term horizon and a tolerance for volatility, the current valuation offers a compelling entry point, particularly if KHC can execute on its brand revitalization and cost-cutting initiatives. However, those skeptical of the company's ability to reverse its sales and margin trends may prefer to wait for clearer signs of turnaround. Ultimately, the selloff reflects a valuation dislocation that rewards those who can differentiate between temporary pessimism and enduring weakness.