Unusual Kraft Heinz Options Trading Shows Investors Are Nervous Before Earnings

Unusual volume in at-the-money call options of The Kraft Heinz Company (KHC) today shows investors may be nervous ahead of its upcoming earnings. Will the company's free cash flow and FCF margins rise after the CEO turned down a split?

KHC is at $22.11 in midday trading today, off its recent peak of $23.57 on April 6. But KHC is still up from a low of $21.21 on March 23. However, it could be worth significantly more if its free cash flow (FCF) remains strong.

I discussed this in a Barchart article last month. This was after the CEO made an about-turn and decided to cancel a planned split-up (March 17, “Kraft Heinz's About Turn and FCF Growth Leads To Huge Unusual Call Options Trading.”)

What KHC Stock Could Be Worth

I showed that KHC could potentially be worth $27 per share. This article will review that price target.

That price target assumes Kraft Heinz can maintain at least a 17% FCF margin. That would even be lower than the 18.43% FCF margin it made in Q4. 

The reason I use a lower margin is that capex could be higher. That could come from its drive to turn around its operations, which would lower the FCF margin.

So, based on analysts' revenue estimates for 2026, FCF could rise to over $4 billion:

  $24.44 billion est 2026 revenue x 0.17 = $4.16 billion FCF

And using a 13% FCF yield metric, that implies its market cap hit $32 billion:

  $4.16b FCF / 0.13 = $32 billion market value

That valuation is 22% higher than its existing $26.155 billion market cap, according to Yahoo! Finance. In other words, the KHC price target (PT) is 22% over today's price:

  $22.11 x 1.22 = $26.97 PT

Adjusting the KHC Price Target (PT)

However, to be conservative, let's assume that its FCF margin comes in lower at 15.85%, just like in 2025, as shown by Stock Analysis. But, let's use the average of the next two years' revenue, including analysts' projections of $24.6 billion for 2027 (i.e., $24.52 billion for the next 12 months or NTM):

  $24.52 billion NTM revenue x 0.1585 FCF margin = $3.886 billion FCF

That's 6.1% over last year's FCF of $3.661 billion. So, the market value estimate is:

  $3.886b / 0.13 = $29.89 billion, or +14.3% higher

  $22.11 x 1.143 = $25.27 PT

The bottom line is that KHC still looks undervalued, ranging between a PT of $25.27 to $26.97.

This is also close to what other analysts are saying. For example, the Yahoo! Finance survey shows an average PT of $24.13 per share, and Barchart's mean survey price is $23.47.

It all depends on how strong KHC's upcoming earnings and free cash flow (FCF) are for the quarter ending March 31. This is expected to be released on March 6, before the market opens.

That could also be why investors are trading huge volumes of at-the-money (ATM) KHC call options today.

Unusual KHC Call Options Volume

This can be seen in the Barchart Unusual Stock Options Activity Report today. It shows that over 63x the prior number of call option contracts are outstanding for the $22.50 strike price expiring April 24.

Over 13,000 call options traded for 21 cents at the $22.50 call options strike price, which is slightly over today's price, but essentially at-the-money (ATM).

That means that buyers of this call option believe KHC might rise over $22.75 (i.e., $22.50 +$0.25 asking price) for the next 9 days. In other words, the KHC has to rise 2.89%:

  $22.75/$22.11 = 1.0289 -1 = +2.89%

That's clearly possible if the company produces strong earnings and FCF for Q1.

However, the heavy volume at this ATM strike price also implies that many investors expect KHC to drop from here. For example, for short-sellers, the yield is:

  $0.21 / $22.11 = 0.95%

That's about 1% for the next 9 days, a reasonably good return. Moreover, the potential buy-in for short-sellers is $22.50-$-.21 = $22.29. That is only slightly over today's price.

The bottom line is that, given KHC's higher potential price targets, if the company produces strong upcoming earnings, investors in these calls could make good returns.