Kraft Heinz (KHC) is among the top 10 holdings for Berkshire Hathaway(BRK.B) - whose chairman, Warren Buffett, is among the best-known value investors of all time. In 2019, though, Buffett admitted that he overpaid for Heinz, after giving his blessing to the merger with Kraft just four years prior.

When the merged entity started to trade in 2015, it opened at $71 – over twice the current price level, but less than a third of its all-time highs in 2017. KHC is down about 20% in 2023, and is trading near its 52-week lows. 

However, despite the stock's perennial underperformance – KHC's returns have lagged markets consistently across most time frames over the last five years – Buffett has stayed put, and Berkshire continues to be the biggest stockholder at over 26%. 

So, should you buy the stock as it trades near its lowest levels since late 2021 - or give this Buffett “mistake” a pass? 

Why Is Kraft Heinz Stock Falling?

A simple glance at Kraft Heinz’s earnings might tell us why the stock is falling. Its top line has been stagnant, and revenues fell 0.5% in 2021. While sales rose 1.7% in 2022, that was on the back of massive price increases, and its volumes fell 4.8% in the year.

KHC's sales volumes have continued to slide, and fell 5.3% and 7% in the first and second quarters of 2023, respectively. Kraft Heinz has been losing market share, a situation it blames on the pricing strategy of its competitors - which have been trying to lure customers with promotional offers. KHC, on the other hand, was disciplined with its pricing, which led to a gap between its prices and that of competitors. In the current macro environment, many customers have been trading down to lower-priced brands and private labels, as high inflation has taken a toll on monthly family budgets. 

Another concerning aspect for investors would be Kraft Heinz's balance sheet, which looks stretched with a nearly $20 billion debt load. While the debt pile has fallen by more than $10 billion since the end of 2018, it is still quite high. 

Warren Buffett on Kraft Heinz

Another notable aspect about the consumer staples industry, which Buffett has also talked about, is that they are generally in a weaker position when it comes to negotiating with mega retailers like Walmart (WMT) and e-commerce giants like Amazon (AMZN). With retail companies aggressively pushing their own private labels, Kraft Heinz is struggling to address weaker volumes – and changing consumer habits are not helping matters.

Notably, KHC was also slow to adapt to healthier food alternatives, where demand has been growing at the expense of processed foods. Even beverage giants like Coca-Cola (KO) – another long-time Buffett holding – have been pivoting to healthier alternatives.

Should You Buy Kraft Heinz Stock?

Kraft Heinz has been transforming its business under CEO Miguel Patricio, who is set to transition to the role of non-executive chairman next year. It has exited several brands, while acquiring some others to improve its competitive lead. The company is targeting long-term organic sales growth of 2%-3% and adjusted EPS growth of 6%-8%. 

It has also expanded its presence in the healthy food market, and has been lowering its debt load. The company is also trying to revive its iconic brands, like Oscar Mayer, which have fallen out of favor with younger demographics.

In an interview with CNN Business last year, Patricio acknowledged: “For a while, we were apologetic about the brands that we had.” The company had started to focus on new niche brands  - but it's stopped doing that now, and is instead reinvesting in its older brands, which Patricio termed as “incredible.”

Meanwhile, KHC looks reasonably valued with a next 12 months price-to-earnings multiple of just under 11x - which is similar to that of Conagra Brands (CAG). Incidentally, both stocks also have similar dividend yields of around 5%.

Wall Street's KHC Forecast

Wall Street analysts rate KHC as a Moderate Buy, on average. Of the 15 analysts covering the stock, five rate it as a Strong Buy while 10 rank it as a Hold. 

Its mean target price of $40.47 is 28% over current prices.

All things considered, I wouldn't be too excited to buy KHC at these price levels. After the recent pullback in U.S. markets, there are some other compelling stories that offer a better risk-reward. 

However, if you are looking for a stock with a high dividend yield in an industry that offers some degree of insulation from the current macro environment and rising geopolitical tensions, KHC just might fit the bill.