Merrill Downgrades Kraft to 'Neutral'

Analyst Leonard Teitelbaum says without solid earnings growth, Kraft is looking more like an average company in the food industry

Merrill Lynch downgraded Kraft Foods (KFT ) to neutral from buy.

Analyst Leonard Teitelbaum says the food manufacturer warned on 2003 earnings per share, which he says causes concern. Kraft cited pension fund accounting and stock-based compensation for its lowered outlook. Teitelbaum says a major question surrounds his estimate of operating income ex-synergies from Nabisco, which will be up only modestly from 2002. This makes the 2003 picture even murkier.

For 2003, Teiteblaum says Kraft is beginning to mirror the average company in the food industry. Rather than Kraft commanding a 10%-15% premium to the average packaged food company's price-earnings multiple of 16, he sees Kraft playing more towards the average until it restablishes operating income growth.