The Kraft Heinz CompanyKHCNASDAQ
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DCF Valuation
DCF Valuation Summary
Strong Buy
Fair Value: $38.95 per share(market-calibrated)
+60.8%
Upside to Fair Value
Current
$24.22
Pure Model
$43.86
Fair Value
$38.95
Bull Case
$50.18
Bear Case
$39.21
Market Reality Check
Model Terminal Growth
2.50%
Market-Implied Growth
0.50%
Calibrated Growth
1.80%
Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $43.86.
What's Driving This Ratingfor KHC
↓
CapEx normalizing toward maintenance
Historical CapEx is 3.74% of revenue (heavy investment phase). Model fades this to 3.00% by Year 10, freeing up ~$200M in annual FCF. This is the biggest driver of long-term cash flow improvement.
↑
Margin expansion modeled
Current EBIT margin is 6.99% — below the sector mature average of 16.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $3.5B (13.05% margin).
→
Moderate revenue growth
Analyst consensus projects -1.99% revenue growth, fading to 2.50% by Year 10. Revenue reaches $27.1B (vs $24.9B today).
🎯
Market pricing in lower growth than model
The market implies only 0.50% perpetual growth — 200bps below the model's 2.50%. This suggests the market sees headwinds or risks not in the model.
✓
Strong cash flow conversion
Year 10 FCF/EBITDA conversion of 65.53% indicates efficient cash generation. FCF reaches $3.0B by Year 10 (11.03% FCF margin).
Weighted Average Cost of Capital (WACC)
Cost of Equity (CAPM)
Risk-Free Rate (Rf)4.50%
Beta (β)0.05
Market Risk Premium4.50%
*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)
Cost of Equity (Re)4.71%
Cost of Debt
Pre-tax Cost of Debt5.41%
Tax Rate21.00%
After-tax Cost of Debt4.27%
Equity Weight (E/V)57.53%
Debt Weight (D/V)42.47%
WACC Calculation
WACC = (E/V × Re) + (D/V × Rd × (1-Tc))
WACC = (57.53% × 4.71%) + (42.47% × 4.27%)
= 5.50%
10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)
| Year | Year 1 | Year 3 | Year 5 | Year 7 | Year 10 |
|---|---|---|---|---|---|
| Revenue | $24.4B | $24.9B | $24.9B | $25.5B | $27.1B |
| EBIT | $1.7B | $1.7B | $1.7B | $2.6B | $3.5B |
| Tax | $359M | $365M | $366M | $548M | $744M |
| NOPAT | $1.4B | $1.4B | $1.4B | $2.1B | $2.8B |
| + Depreciation | $925M | $942M | $944M | $965M | $1.0B |
| - Capex | $913M | $889M | $850M | $828M | $814M |
| - Δ NWC | -$13M | $7M | $3M | $9M | $17M |
| Free Cash Flow | $1.4B | $1.4B | $1.5B | $2.2B | $3.0B |
| Discount Factor | 0.948 | 0.852 | 0.765 | 0.687 | 0.585 |
| Present Value | $1.3B | $1.2B | $1.1B | $1.5B | $1.8B |
FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital
Terminal Value Calculation
Perpetuity Growth Method
Year 10 FCF$3.0B
Terminal Growth Rate2.50%
WACC5.50%
TV = FCF₁₀ × (1+g) / (WACC-g)
Terminal Value$102.3B
PV of Terminal Value$59.9B
Exit Multiple Method
Year 10 EBITDA$4.6B
Exit Multiple (EV/EBITDA)20.0x
TV = EBITDA₁₀ × Exit Multiple
Terminal Value$91.4B
PV of Terminal Value$53.5B
Valuation Summary
Perpetuity Growth Method
PV of Projected FCFs$14.0B
PV of Terminal Value$59.9B
Enterprise Value$73.9B
(-) Net Debt$18.6B
Equity Value$55.3B
Shares Outstanding1.2B
Price per Share$46.55
Exit Multiple Method
PV of Projected FCFs$14.0B
PV of Terminal Value$53.5B
Enterprise Value$67.5B
(-) Net Debt$18.6B
Equity Value$48.9B
Shares Outstanding1.2B
Price per Share$41.17
Pure Model Fair Value
$43.86
Average of perpetuity growth and exit multiple methods (before market calibration)
Sensitivity AnalysisPrice per Share
| WACC ↓ / Growth → | 1.50% | 2.00% | 2.50% | 3.00% | 3.50% |
|---|---|---|---|---|---|
| 3.50% | $70.18 | $66.60 | $63.19 | $59.94 | $56.84 |
| 4.50% | $49.04 | $54.70 | $63.19 | $59.94 | $56.84 |
| 5.50% | $37.37 | $40.15 | $43.86 | $49.05 | $56.84 |
| 6.50% | $29.61 | $31.20 | $33.19 | $35.74 | $39.15 |
| 7.50% | $23.91 | $24.91 | $26.10 | $27.57 | $29.39 |
How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.
Scenario Analysis
Bear Case
$39.21
61.9% vs current
- • -25% vs analyst consensus
- • Terminal growth: 2.0%
- • Beta: 0.06
Base Case
$43.86
81.1% vs current
- • Analyst consensus
- • Terminal growth: 2.5%
- • Beta: 0.05
Bull Case
$50.18
107.2% vs current
- • +25% vs analyst consensus
- • Terminal growth: 3.0%
- • Beta: 0.30
Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Consumer Defensive Sector
Growth Assumptions (Select Years)
Year 1 Revenue Growth-1.99%
Year 3 Revenue Growth1.17%
Year 5 Revenue Growth0.53%
Year 7 Revenue Growth1.32%
Year 10 Revenue Growth2.50%
Terminal Growth Rate2.50%
Margin & Efficiency
Current EBIT Margin6.99%
Terminal EBIT Margin16.00%
Tax Rate21.00%
Historical Capex / Rev3.74%
Terminal Capex / Rev3.00%
NWC / Revenue2.57%
Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.
Institutional-Grade Methodology
Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta
Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 20x EV/EBITDA (Consumer Defensive sector)
This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.