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Shares of Kraft, Mondelez diverge after split

by Margaret Sutherlin
Oct 09, 2012


KRAFT_SUTHERLIN

Margaret Sutherlin/MEDILL

In the first week of trading, shares of Mondelez International Inc. traded lower. 

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Margaret Sutherlin/MEDILL

In the first week of trading, shares of Kraft Foods Group  traded higher.

A year ago Kraft Foods Inc. announced radical plans to spice up its food business by splitting into two companies—the snack company known as Mondelez International Inc. and the new Kraft Foods Group Inc. The move was widely seen an effort to boost the value of Kraft’s shares by highlighting the fast-growing snack business, which includes brands such as Nabisco, Cadbury and Oreos.

Yet after the first week trading as separate companies, investors appear to have a bigger appetite for Kraft Foods, which includes more mature brands such as Oscar Meyer, Jell-O and Maxwell House. Kraft shares closed up at 3.5 percent, while Mondelez shares closed down just more than 2 percent.

The verdict is still out, analysts say. Joe Cornell, principal at Chicago-based Spin-Off Research, says Mondelez shares clearly outperformed the new Kraft based on where the shares were priced before official trading began. “If we look at the performance of the stocks since when-issued trading began on Sept. 17, Mondelez has gained 12 percent compared to 3 percent for Kraft,” Cornell noted.

Basil Maglaris, spokesman for Kraft Foods, acknowledged that it won’t be easy to increase penetration of the company’s already well-known brands. The key will be introducing innovative new products. “We have a strong foundation to build on: our brands can be found in 98 percent of pantries and refrigerators across the country,” he said.

Stock analysts have widely characterized Mondelez as the stock with the most potential for growth based on burgeoning demand for snacks in Asia and South America.

“Internationally, we expect developing markets to drive maximum growth for Mondelez going forward. We expect developing markets to deliver double-digit revenue growth over the long-term,” said Cornell.

Meanwhile, the new Kraft will be focused on developing the power brands in the company. “When you invest in great brands, they’ll do well,” Maglaris said. Also, the company’s shares come with a dividend payment that will attract risk-averse investors.

Many analysts have rated both Kraft and Mondelez as a buy. Credit-Suisse analyst Robert Moskow expects both Kraft and Mondelez to outperform the general market. Bank of Montreal analyst Kenneth Zaslow has an outperform rating on Kraft and a market perform rating on Mondelez.

According to Bloomberg, 16 analysts are following Kraft and 21 are following Mondelez. Both companies continue to be headquartered in the Chicago area.

Kraft shares closed Tuesday at $47, up 41 cents per share. Mondelez shares closed down 19 cents to $27.36.