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Say Cheese! Cramer Smiles On Kraft Breakup

No matter how you slice it, the split-up of Kraft looks good.

“I think this break-up is the smartest thing Kraft has done since it was spun off a decade ago by the old Phillip Morris before they changed the name to Altria ,” said “Mad Money” host Jim Cramer.

Two years ago, he inducted Kraft CEO Irene Rosenfeld into his Wall of Shame following the company’s $20 million hostile takeover bid for Cadbury.

“I have not been a fan of Kraft, not at all,” said Jim Cramer. “For a long time I viewed it as a directionless company with a flat-lining stock—heck, the darned thing IPO’d at $31 in 2001, and in the 10 years since then it’s only managed to climb up four points to $35.”

But splitting the company into “two lean, mean, focused money-making machines,” he said, warrants taking Rosenfeld off the naughty list.

Cramer called the situation reminiscent of when Altria, Kraft’s old parent, spun off Phillip Morris International in March 2008. The move resulted in both stocks being up over 60 percent when reinvested dividends are included—during a period where the S&P 500 was down 2 percent.

“The best way to think of Kraft in its current incarnation is as a bad marriage that just isn’t working,” he said.

The split would create two distinct portfolios—“Snacks Co.” and “Grocery Co.”—with very different growth rates, different margins, different distribution channels, different selling needs, and most importantly, different prospects.

“Investors looking for consistency and income will actually want to buy Grocery Co., while growth-oriented investors will want to buy Snacks Co.,” he said. “That’s a big improvement from the current situation where neither cohort of stock buyers wants Kraft because it’s not one thing or the other. It’s just something kind of in between that doesn’t appeal to either group.”

Last week, Kraft delivered a 3-cent earnings beat off a 55-cent basis, on higher than expected revenues that rose 11.5 percent year over year. The company also gave upside guidance for the rest of the year.

Some analysts think that the split alone could be worth as much as $7 to the stock—a 20 percent boost—just from breaking itself up.

The bottom line: The breakup of Kraft makes the stock worth owning.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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