Kraft Foods Looks Delectable

Kraft Foods, Inc. (KFT - Analyst Report) completed its Sustainable Growth Plan, which included capacity rationalization, stock keeping unit reduction, and cost savings programs; however, the results were unsatisfactory. Therefore, in February 2007, the management announced a new turnaround strategy to revitalize the company's growth.

Concurrent with the announcement, the Board approved a significant $5 billion share repurchase program. The new strategy has generated a significant turnaround in organic revenue growth. In mid-February this year, Berkshire Hathaway (BRK.A - Snapshot Report) disclosed the ownership of a substantial stake in Kraft Foods. The Buy recommendation is maintained.

Since the stock offering in 2001, Kraft’s stock has traded between a 13 to 22 P/E multiple. With the turnaround in organic revenue growth and positive earnings comparisons expected to begin with the fourth quarter of 2008, the stock appears attractive. The target price of $36.50 is based on a 19 P/E on this year’s earning estimate of $1.92.

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