We recently upgraded our recommendation on
ConAgra Foods, Inc.
) from Underperform to Neutral, expecting the company to perform
in line with the broader market in the next 6-12 months.
Why the Upgrade?
ConAgra is one of North America's leading food companies, serving
grocery retailers, restaurants and other foodservice
establishments. The company's brands are found in roughly 97% of
America's households. The company has delivered a year-to-date
return of 13.9%.
We find the long-term growth aspects of ConAgra to be bright and
thus anticipate the company to grow its earnings by 8.7% in the
next 5 years while year-over-year growth is predicted to be 8.7%
and 10.5% for fiscal 2014 and 2015, respectively.
Acquisitions have played an integral part in ConAgra's growth
over time. The recent acquisition of Ralcorp is worth mentioning
in this regard. These assets are expected to contribute 25 cents
to earnings per share in fiscal 2014 and yield synergies of $300
million by 2017. Besides acquisitions, ConAgra's joint venture,
the Ardent Mills, between Cargill Inc. and CHS Inc, will boost
the company's customer supply chain solutions, efficiency,
innovation capabilities and profits.
Also, ConAgra's financial results for the second quarter of
fiscal 2014 were impressive. Adjusted earnings per share
increased 9% year over year to 62 cents. Revenues were $4.7
billion, up 26.5% year over year driven by solid contribution
from the Ralcorp acquisition.
Considering these positives, we have upgraded ConAgra from
Underperform to Neutral. However, our upgrade was restricted to a
Neutral view due to the loss of an important customer in the Lamb
Weston Potato business. Also, ConAgra is exposed to fluctuations
in raw materials prices along with supply-demand inconsistency.
The presence of many players in the industry has reduced the
company's control and increased pricing pressure.
In the last 30 days, the Zacks Consensus Estimate for ConAgra has
grown by 0.4% to $2.35 for fiscal 2014 and to $2.60 for fiscal
Other Stocks to Consider
ConAgra Foods, Inc. currently has a $14.2 billion market
capitalization and carries a Zacks Rank #2 (Buy).
Other stocks worth considering in the industry include
The Chefs' Warehouse, Inc.
Inventure Foods, Inc.
Kraft Foods Group, Inc.
). All the three companies also carry a Zacks Rank #2 (Buy).
CONAGRA FOODS (CAG): Free Stock Analysis
CHEFS WAREHOUSE (CHEF): Free Stock Analysis
KRAFT FOODS GRP (KRFT): Free Stock Analysis
INVENTURE FOODS (SNAK): Free Stock Analysis
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