4 Consumer Staples M&A Targets

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Consolidation is coming to your refrigerator and cupboards this year. Brazil’s 3G Capital and Warren Buffett’s Berkshire Hathaway Inc (NYSE:BRK.A, BRK.B) have teamed up to help H.J. Heinz Company (NYSE:HNZ) acquire diversified food producer Kraft Foods Group Inc (NASDAQ:KRFT).

Heinz logo

The new Heinz-Kraft combo would create North America’s third-largest food manufacturer and would control some of the leading food brands like Oscar Myer, Velveeta and Ore-Ida.

While the deal is certainly great for KRFT stock investors, it might not be so great for the countless other consumer staples and food manufacturer stocks out there. The synergies and cost savings from the combo — covering everything from sourcing and distribution to sales and marketing — could be a huge growth driver.

And given just how big the Heinz-Kraft M&A deal is, other consumer staples stocks are being put on the defensive. Which is why many analysts are now pointing to another big wave of M&A in the food sector.

For investors, the opportunity to play this could result in some serious cash. KRFT spiked 45% when the deal was announced. But which food stocks are buyout targets? Here are four consumer staples M&A targets to buy.

Consumer Staples M&A Targets — WhiteWave Foods Co (WWAV)

WhiteWaveWWAV185Struggling growth is the real reason why Heinz is buying out KRFT. Much of the packaged food industry is stalling, with one exception: organic and natural food items. The growth in organic and natural foods is why WhiteWave Foods Co (NYSE:WWAV) could be the next target of M&A.

WWAV produces dairy- and plant-based beverages and foods, including brands like Land O’ Lakes and International Delights coffee creamers. However, the real booming brands for WhiteWave are Silk, So Delicious and Horizon Organic. Those three brands — along with recently purchased Earthbound Farms Organic Fruits & Vegetables — have made-up the vast bulk of the firms revenues over the last few quarters. And they are also supplying much of WWAV’s growth.

In WhiteWave’s latest quarter, sales surged by 34%, driven by these organic and natural brands.

Surging sales have already made WWAV a big time M&A target, as a buyout would pretty much be instantly accretive to a larger firm. And with the KRFT/Heinz deal now in place, WhiteWave could be next.

Shares of WWAV stock continue to hit new all-time highs and aren’t cheap at a forward P/E of 34. However, analysts do have price targets for shares about 13% higher, based on WWAV stock’s growth and M&A potential.

Consumer Staples M&A Targets — Monster Beverage Corp (MNST)

monster-beverage-mnst-stock-logo-185Early investors in natural soda and energy drink producer Monster Beverage Corp (NASDAQ:MNST) have profited handsomely from the company’s continued growth. Newer investors still can make some hay with MNST stock as an M&A candidate.

Americans simply aren’t drinking as much soda anymore. However, sales of energy drinks, enhanced waters and “pure” sodas continue to grow. Some analysts even believe that energy drinks will become a $21 billion market by 2017 — up from only around $12 billion today.

That level of expected growth could explain why beverage giant Coca-Cola Co (NYSE:KO) has taken a shine to energy drinks to replace sagging soft drink sales. Over the summer, KO took a 16.7% stake in MNST and recently upped a distribution agreement include new territories. The large stake and KO’s continued partnerships have many sector analysts thinking that KO is close to buying out Monster.

And while MNST is a relatively large firm — with a $24 billion market cap — Coke does have some heavy muscle at its disposal, considering Warren Buffett is KO’s largest shareholder. With Buffett’s recent involvement in the Heinz-KRFT deal, helping KO buy out MNST seems very plausible.

For investors, the potential of a big deal for MNST stock could turn into a big payday.

Consumer Staples M&A Targets — Mondelez International Inc (MDLZ)

Mondelez NASDAQ:MDLZIf you travel back to 2012, you may remember that Kraft wasn’t just about grocery items. Brands like Oreo Cookies, Ritz Crackers and Trident Gum were part of the KRFT umbrella.

The problem was that cheese and lunch meat had been sort of a wet blanket over snack foods. Management decided to spin off these operations as Mondelez International Inc (NASDAQ:MDLZ).

Now MDLZ could be an M&A target of its own.

While organic is hot, Americans — and the rest of the world, for that matter — still consume a ton of snack foods. That fact has padded MDLZ’s bottom line quite nicely since being separated from its former parent. A hefty dose of cuts and margin expansion haven’t hurt, either.

Mondelez managed to report positive earnings surprises for three out of the last four quarters. But there are still synergies to exploit — especially if placed inside another snack food powerhouse.

With that in mind, analysts have begun to predict that MDLZ will be the next big deal in grocery aisle. Snack food and soft drink king PepsiCo, Inc. (NYSE:PEP) is predicted to be a suitor, while some analysts have actually suggested that the spinoff would make a great fit for its former parent now that KRFT has merged with Heinz.

Consumer Staples Stocks M&A Targets #4: Campbell Soup Company (CPB)

Campbell Soup Co. (NYSE: CPB)Investors in the Campbell Soup Company (NYSE:CPB) may want change their slogan from “M’m! M’m! Good!” to “M’m! M’m! M&A!” CPB continues to struggle on its own, which has sparked plenty of buyout talk from analysts.

Who could be doing the buying? Berkshire Hathaway and 3G, of course.

CPB M&A chatter emerged last summer when Buffett announced that he was looking into beefing up his food acquisitions for Berkshire. The buyout ended up being the initial Heinz deal with 3G. However, CPB might actually be a great fit for the newly formed HNZ-KRFT.

Despite its warts, Campbell’s still throws off a decent amount of free cash flows. Plus, both Cambell and Heinz primarily deal with fruit- and vegetable-based packaged products. Like the KRFT deal, buying CPB could result in plenty of chances for cost cutting and a re-ignition of growth.

While the recent bit of M&A does pour some cold water on a CPB buyout today, some analysts still wouldn’t be surprised if 3G and Buffett came in and purchased the struggling firm.

CPB stock hasn’t really moved all that much over the last 52-weeks and roughly trades in a tight range. But at least you can sit back and collect a 2.7% dividend while you’re waiting for Buffett to swoop in and buy the company.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

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Aaron Levitt is an investment journalist living in Ohio. With nearly two decades of experience, his work appears in several high-profile publications in both print and on the web. Also likes a good Reuben sandwich. Follow his picks and pans on Twitter at @AaronLevitt.


Article printed from InvestorPlace Media, https://investorplace.com/2015/04/krft-ma-buffett-heinz/.

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