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H. J. Heinz Company Message Board

  • irosen1 irosen1 Mar 7, 1998 12:33 PM Flag

    Still Overvalued

    Even if they come in with earnings on target this stock is vastly overvalued. With earnings growth of 10-11%, the PE of 28, this stock's PE is trading 2.8X its growth rate. Which is higher than most drug companys and higher tech leaders like DEll, MSFT, and CSCO.

    Now that all the good news is priced in, those puts look very attractive. Once HNZ can close below it's previous peak, at $56 this stock should test $50. The march or April $55 look great.

    Even if this quarters numbers come in at .54, HNZ will have trailing 12 month earnings of $2.11. At a stock price of $50 that's a PE of 24 which is still high compare to it's growth rate %10 and its average PE over the past few years 20.

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    • Yes, but what if they come out with earnings that
      "beat the street"? Depending on how much, that
      could take the p/e right back to what is normal
      for a good solid company like HNZ. I notice you
      don't address that scenario in any of your posts.
      Is that an unrealistic expectation? Why? Have
      analysts set the estimate too high? Is world
      demand for food dwindling even though the population
      is growing?

      I've seen a lot of optimism regarding the management
      changes that are occurring at HNZ. Most people say
      that HNZ would've done much better to this point if
      O'Reilly had stepped aside years ago.

      • 1 Reply to h8no1
      • You pose some good questions. While earnings could come in higher than expected, their tract record over the past several quarters has been right on, or a .01 either way. And no the demand for food hasn't dwindled, but their costs for ingredients could be going up due to El Nino.

        My concern for HNZ is more a valuation one. With it's current PE at 28, which is higher than its ever been in the past 5 years, and a PEG of 2.8 the company has more downside potential than upside.

        It's PE range in the past few years has been 16-30, and its virtually impossible to trade at a PE above 28 for ever. At some point it's going test more normal PE levels, say 20-22, and where better to start from than such extreme highs.


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