On Feb 25, we upgraded our rating on food giant, ConAgra
Foods Inc. ( CAG ) to Outperform
based on its improved prospects going forward, following its
acquisition of Ralcorp Holdings Inc., the largest private label
food products company based in the US.
Moreover, subsequent to the acquisition ConAgra became a Zacks
#1 Rank (Strong Buy).
Why the Upgrade?
ConAgra completed the acquisition of Ralcorp Holdings on Jan 29,
2013. Subsequent to the acquisition, ConAgra will become the market
leader in packaged foods industry for the region, with roughly
$18.0 billion in sales annually. It is also expected that the
strategic acquisition will bring about cost synergies to the
Following the acquisition, last week ConAgra raised its earnings
expectations for fiscal 2013. The Ralcorp purchase is expected to
contribute 5 cents and 25 cents to earnings per share in 2013 and
2014, respectively. Therefore, ConAgra increased its earnings
outlook for fiscal 2013 to $2.15 from previous expectations of
$2.06 per share.
The Zacks Consensus Estimate for fiscal 2013 has also gone up
2.9% to $2.15 per share following the guidance raise. Moreover, the
Zacks Consensus Estimate for fiscal 2014 has increased 4.8% to
$2.42 per share.
Apart from the Ralcorp acquisition, better than expected
performance of its base business also drove the guidance increase.
Despite a higher debt position, resulting from the acquisition,
ConAgra maintains its current dividend policy and expects to raise
it further in the coming quarters.
Other Stocks to Consider
Besides ConAgra, other stocks in the food industry that are
currently performing well include Chiquita Brands
International Inc. ( CQB ), Flowers
Foods, Inc. ( FLO ) and
J&J Snack Foods Corp. ( JJSF ). All these
companies carry a Zacks #1 Rank (Strong Buy).CONAGRA FOODS (CAG): Free Stock Analysis ReportCHIQUITA BR INT (CQB): Free Stock Analysis
ReportFLOWERS FOODS (FLO): Free Stock Analysis ReportJ&J SNACK FOODS (JJSF): Free Stock Analysis
ReportTo read this article on Zacks.com click here.Zacks Investment