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For investors in Kraft Heinz (NASDAQ:KHC), it’s been a rather rough day. Shares of KHC stock are currently trading more than 6% lower in early afternoon trading on a couple of key headwinds.
The first headwind investors are pricing in is a downgrade from prominent analyst Cody Ross at UBS. This downgrade took the form of a price cut from $40 per share to $34 per share, as well as a shift to a “sell” rating. For investors who follow Wall Street analysts, this is certainly not a move in the right direction.
Second, 3G Capital, a key stakeholder in Kraft Heinz, announced it would be distributing 88 million shares of KHC stock to external investors. Such a large distribution signals this fund is turning less bullish on the future prospects of the food conglomerate.
Let’s dive into why investors are taking this news so negatively today.
Why Is KHC Stock Down So Sharply on This News?
The analyst downgrade is notable because of the reasons given for the sentiment shift. UBS analyst Cody Ross has taken the view that inflationary pressures may have an outsized effect on this food conglomerate. The company’s ability to promote its product and compete in other categories may take a hit. Additionally, a slowdown in consumer spending may further impact consumer trade and specifically private label sales.
Now, personally, I believe ketchup and mustard are necessary staples. However, there are some that may believe that a slowdown in consumer spending will impact even these necessities. With such a bearish view building, it’s easy to see why even the most stable and defensive companies are getting dragged down in the mess.
That said, today’s announcement that 3G will distribute 88 million shares of KHC stock is perhaps the bigger story. By distributing these shares to external shareholders, the fund is looking to reduce its exposure to KHC. Investors who have tremendous skin in the game may be taken more seriously than analysts who aren’t allowed to trade the stocks they follow. In this regard, I can see why the market is reacting so sharply to this news.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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