RBC Raises Kraft Foods PT As Heinz Merger Offers Multiple Avenues For Valuable Synergies

RBC Capital Markets on Thursday issued a report on Kraft Foods Group Inc (NASDAQ: KRFT) after the announcement of the Kraft-Heinz merger. RBC maintained its Outperform rating and raised its price target from $72 to $92.

Analysts David Palmer and Christopher Carril wrote, " We believe that there is upside to identified synergy targets ($1.5B) and our estimates imply 5 percent underlying EBITDA growth along with $2B in synergies by 2017. Furthermore, we believe valuation should reflect further M&A optionality... We also believe that at some point in the future, Kraft Heinz will seek greater international exposure and scale."

By merging with Kraft, 3G and Heinz are merging with a food company with a concentration in the highest food margin market in the world. 3G has had a track record of driving out costs through its own cost discipline before any true synergies and analysts are optimistic that it can repeat the same performance, bringing value to shareholders. RBC believes that Kraft-Heinz's biggest need will be growth internationally, particularly developing market scale in non-temperature controlled distribution.

Shares of Kraft Foods closed Wednesday at $83.17.