These Calls on Kraft Heinz (KHC) Could Give You a 100% Return

Covered Calls, Options
Reading Time: 3 minutes

Shares of Kraft Heinz have more than doubled since falling below the $20 level in March of 2020, recently hitting a 52-week peak north of $44. While analysts remain tentative on shares given the huge run up, Kraft Heinz remains a solid long-term investment.

The company recently reported its fourth straight earnings beat after announcing first-quarter numbers in late April. Profits of $0.72 a share were $0.13 higher than forecasts of $0.59. Revenue of $6.4 billion topped consensus of $6.24 billion.

This follows earnings beats of $0.06, $0.08, and $0.15 in the prior three quarters. For the current quarter, analysts expect Kraft Heinz to post a profit of $0.72 on sales of $6.55 billion.

Currently, 21 analysts follow KHC: one strong buy rating, one buy, and 17 holds. There is also one underperform and one sell recommendation.

Higher commodity and packaging materials prices could be a concern going forward, but KHC could consider raising prices to offset the increased cost. While this isn’t the best news for consumers, products that use wheat, sugar, and other ingredients have already become more expensive due to elevated demand.

In fact, the company’s CEO, Miguel Patricio, said they are monitoring inflation in any products related to grains, and whether they could raise prices in certain categories. KHC should face little resistance; given the brand’s recognition and pricing power, the company should be able to maintain sales momentum in an ongoing inflationary environment.

Investors who shy away from the stock’s one-year performance will be assured to know that it remains one of Warren Buffet’s Berkshire Hathaway’s (BRK.A, BRK.B) top holdings. Buffett disclosed this information in a SEC filing of its holdings as of March 31, 2021.

Looking at these in the longer term, the below three-year weekly chart shows shares recently cleared major resistance at the $42.50 level from January 2019. As long as this area holds going forward, shares could easily make a run towards the low-to-mid $50s at some point in 2021.

If the company continues to post solid earnings, analysts will have to come off the sidelines and reevaluate their hold ratings. The stock also yields a 3.67% dividend at current levels, with an annual payout of $1.60. Moreover, shares are still down roughly 50% from KHC’s all-time high of $96.65, which was reached in February 2017.

Conservative traders can feel confident in adding this stock to their portfolios with a stop at $40 if shares do fade from current levels. Aggressive traders could consider longer-term options as a cheaper way to play continued upside in the stock.

The Kraft Heinz January 50 calls are currently trading near the $1.30 level and do not expire until January 21, 2022. This gives the stock more than seven months to make its way into the low $50s. If shares are above $52.60, technically, by expiration, these options would be $2.60 in the money. This would represent a double, with a run past $54 giving the investment a 200% return from current levels.

$7,000 into $252,255

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