Investing.com -- Goldman Sachs initiated coverage of Kerry Group with a “buy” rating on Friday, citing valuation levels and business positioning following the completion of a multi-year portfolio transformation.
Kerry shares were priced at €73.45 at the time of initiation, with a 12-month price target of €95, implying upside of 29.3%.
The initiation follows Kerry’s exit from its consumer foods operations, culminating in the December 2024 divestiture of Dairy Ireland.
That business contributed 13% of group sales and 5% of EBITDA in 2024 and was described in the report as slower growing and more capital intensive than Kerry’s remaining operations.
The transaction resulted in a 140 basis point increase in Kerry’s adjusted EBITDA margin for 2024, with the group now operating as a pure-play ingredients supplier focused on taste, nutrition and functional solutions.
Goldman Sachs reported that Kerry generated €6.93 billion in sales in fiscal 2024, with an EBITDA margin of 17.1%.
The brokerage noted that more than 90% of Kerry’s portfolio is now positioned in higher-margin ingredients following 17 acquisitions and divestments since 2020, which collectively repositioned about 40% of the business.
According to the report, future acquisitions are expected to be limited to technology bolt-on deals rather than large portfolio shifts.
At initiation, Kerry was trading at 14x 2026 estimated earnings, which Goldman Sachs said represents the first percentile of the company’s valuation over the past 10 years and a 35% discount to consumer ingredient peers.
The brokerage noted that Kerry’s forward P/E multiple has compressed by about 50% from a peak of 32x in 2021, reflecting concerns around GLP-1 drugs, prolonged consumer weakness in the United States and China, and softer volume growth in recent years.
Goldman Sachs reported that Kerry’s volume growth slowed from 8% in 2022 to 1% in 2023 and has remained around 3%, below the company’s 4% to 6% target.
The analysts identified volume recovery as central to the investment case, while noting that Kerry’s volumes have historically shown resilience, with declines occurring only in 2009 and 2020 over the past two decades.
The brokerage stated that Kerry derives 32% of its revenue from the food service channel, 61% from retail and 7% from pharma ingredients. Regionally, 55% of sales come from the Americas, 24% from APMEA and 21% from Europe.
Goldman Sachs highlighted that Kerry’s food service exposure is higher than that of peers, while its customer base remains diversified, with no single customer accounting for more than a low single-digit percentage of revenue and the top 10 customers representing about 25% of sales.
The brokerage also pointed to balance sheet trends at initiation, reporting net debt of 0.9x estimated EBITDA for 2026, down from higher levels earlier in the decade. The analysts stated that improving cash generation and lower leverage increase financial flexibility following the completion of the portfolio transformation.
