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How State Taxes Put a Bigger Pinch on the PoorH. J. Heinz Company (NYSE: HNZ) is
one of the world's largest food producers, offering ketchups, condiments, sauces, frozen foods, soups, beans, pastas, infant foods and other processed food products to retailers, the foodservice industry and the U.S. military. The firm's leading brands include Heinz ketchup, Ore-Ida potato products, Weight Watchers Smart Ones entrees, Boston Market meals and T.G.I. Friday's snacks. Sixty percent of sales are generated outside of the United States. Campbell Soup (NYSE: CPB) and ConAgra Foods (NYSE: CAG) are major competitors.
The company pleased investors last week, when it guided Q3 EPS to 67-68 cents. Analysts had been looking for 63 cents. The Q3 results are expected to include commodity cost inflation, which the firm is overcoming with higher net pricing, productivity gains and favorable foreign exchange rates. Management also guided FY08 EPS to $2.60-$2.62 ($2.62 consensus). Merrill Lynch subsequently upgraded its HNZ recommendation to "buy".
The stock
price popped through major moving average resistance on the news and then settled into a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Altogether, brokers recommend the issue with three "strong buys", five "buys" and four "holds". The HNZ P/E ratio (17.76), Price to Cash Flow ratio (12.87), EPS Growth rate (20.34%) and Return on Equity (39.27%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 69% of the outstanding shares. The stock is one of those used to calculate the S&P 100 and S&P 500 Indexes. Over the past 52 weeks, it has traded between $41.37 and $48.75. A stop-loss of $39.50 looks good here. Note that the firm is scheduled to present third quarter results on February 26th, before the open.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.
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