The Kraft Heinz CompanyKHCNASDAQ

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $38.95 per share(market-calibrated)

+62.0%

Upside to Fair Value

Current

$24.05

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)57.36%

Debt Weight (D/V)42.64%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (57.36% × 4.71%) + (42.64% × 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

63.1% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.06

Base Case

$43.86

82.4% vs current

• Analyst consensus
• Terminal growth: 2.5%
• Beta: 0.05

Bull Case

$50.18

108.7% 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.

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