- Kraft Heinz (NASDAQ:KHC) reaffirms its full-year outlook ahead of a presentation at the Barclays Global Consumer Conference.
- The food giant also disclosed that it has increased prices in approximately two thirds of its U.S. portfolio, and is prepared to take additional actions if input costs continue to rise.
- "We are implementing necessary pricing actions to manage the cost inflation we are currently seeing, including impacts likely to carry into next year. For 2022, we expect to sustain stronger consumption versus pre-pandemic levels and maintain industry-leading margins as we effectively manage costs and continue to invest in our growth strategy."
- Shares of Kraft Heinz (KHC) are flat in premarket action.
- Read more about inflation pressure in the food sector.
We used to play KHC and I do like them down here at $36.50, which is $43.6Bn and they are good for over $3Bn in earnings so less than 15x is fair and it puts a floor under them at about $25. They pay a 4.5% dividend ($1.60) so let's add them to the Dividend Portfolio as such:
- Buy 1,000 shares KHC at $36.50 ($36,500)
- Sell 10 2023 $35 calls for $4.25 ($4,250)
- Sell 10 2023 $32.50 puts for $3 ($3,000)
That's net $29,250 and, if all goes well, we get called away at $35,000 with another $2,400 in dividends for a net profit of $8,150 (27.8%) in 16 months. Worst case is we end up owning 2,000 shares at an average of $30.875, which is a nice 20% discount to the current price. Not a bad worst case!
In the LTP, we can go the following way:
- Sell 10 KHC 2023 $35 puts for $4 ($4,000)
- Buy 25 KHC 2023 $32.50 calls for $5.85 ($14,625)
- Sell 25 KHC 2023 $40 calls for $2.25 ($5,625)
That's net $5,000 on the $18,750 spread so $13,750 (275%) upside potential but we'll sell some short calls along the way when it's closer to $40 and whittle down that $5,000. If we can get $2 for the Jan $40s (now 0.80) and sell 10 of them, that's $2,000 right there.
