Kraft Heinz Co (KHC) stock intrinsic value fair value estimate & owner earnings analysis

Kraft Heinz sells packaged food under Heinz, Kraft, Oscar Mayer, Philadelphia, Lunchables, Velveeta, Ore-Ida, Maxwell House and Kool-Aid. In 2025 net sales were $24.9 billion, about 75% in North America, and Walmart alone was about 21% of sales. It is a mature, cash-generating business, but a shrinking one: net sales fell 3.0% in 2024 and 3.5% in 2025, and in 2025 volume and mix fell 4.1% while price added only 0.7%. North America volume fell 5.0%, led by cold cuts, coffee, certain condiments, bacon, frozen snacks and desserts, and North America segment operating income fell 14.1% to $4.4 billion. Emerging Markets grew organic sales 4.6%, but it is only about 11% of the company. How we measure earnings. We use owner earnings: operating cash flow, less the cash swings in receivables, inventory, payables and other working capital, less stock compensation, less the part of capital spending needed just to maintain the business. On that basis owner earnings per share were $2.43 (2019), $3.06 (2020), $3.12 (2021), $2.35 (2022), $2.94 (2023), $3.00 (2024) and $2.81 (2025); the seven-year median is $2.94 and 2025 was 6.2% below 2024. We start in 2019 because 2017 and 2018 cash flow was distorted by very large receivable movements (about $2.6 billion and $2.3 billion) and an enormous goodwill write-down. Goodwill and brand write-downs are non-cash and are not charged to earnings; the $9.3 billion of impairments in 2025 ($6.7 billion goodwill, $2.6 billion brand intangibles) and a further $7.4 billion in the first half of 2026 do, however, tell us the brands are worth less than the company once paid for them, and that lost value is reflected in the slower growth path and the bear case rather than in the earnings level. Our build-up of net income plus depreciation and non-cash charges reconciled to reported operating cash flow within roughly 5 to 6 percent; the rest is small items not separately itemised. First half of 2026. Net sales were $12.3 billion versus $12.35 billion a year earlier, essentially flat (down 0.3%). But on our basis owner earnings were about $1.02 per share versus $1.32 in the first half of 2025, a drop of roughly 23%, even though reported operating cash flow rose to $2.09 billion from $1.93 billion, because working capital released about $0.4 billion. We treat this as a warning about profit levels, not as a new base, since it covers only two quarters; it is what the bear case is built on. Base case, about $31 per share. Owner earnings start at $2.64, which is 2025's $2.81 reduced by the same 6.2% it fell last year (year 1 is set no higher than the trailing rate; we found nothing dated in the filings that reverses the trend). They then decline 3% a year through year 10, in line with two consecutive years of roughly 3% sales declines, and fade 2% a year afterward: the Heinz, Kraft and Oscar Mayer brands keep selling and generating cash, but volume erosion continues. No growth is credited. We left out the Emerging Markets growth (too small to offset North America), any margin recovery, and any benefit from the planned split into two companies, which the board paused on February 11, 2026. Bear case, about $19. Owner earnings start at $2.50, our trailing twelve-month figure through June 2026, then fall 8% a year through year 10 and 5% a year after. That is faster than 2025's 6% drop but well short of the first-half 2026 drop. It rests on disclosed facts: North America volume falling 5.0% and segment profit down 14.1% as input and manufacturing costs outpaced savings; a company that has written down goodwill and brands repeatedly (2018, 2020, 2021, 2022, 2024, 2025 and 2026); and long-term debt of $21.2 billion at year-end 2025, of which $1.9 billion was due within a year, with interest expense of $947 million. Debt is not deducted separately; interest is already inside owner earnings. Bull case, about $40. Owner earnings hold at 2025's $2.81 and erode only 1% a year. That would require volume declines to fade, which the filings partly support: first-half 2026 sales were nearly flat, 2025 pricing was positive (0.7%), and Emerging Markets is growing. We do not assume a rebound in the wider market. What would make this wrong: a further steady loss of shelf space or volume at Walmart (21% of sales), which would push results toward the bear case, or price and cost actions that stabilise volumes sooner than we assume. Margin-of-safety price: $18, about 40% below the base case and close to the bear case, reflecting a shrinking, leveraged business with repeated brand write-downs.