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ConAgra Cuts Costs, Faces Competition: Should You Hold?

On Sep 23, 2015, we issued an updated research report on premium consumer goods firm ConAgra Foods, Inc.CAG . The company is one of the leading food companies in North America. Catering to grocery retailers, restaurants and other foodservice establishments, ConAgra has its brand presence in 97% of American households. However, tough competitions along with external market volatilities remain the concerns.

Bullish Elements

ConAgra is strategically improving its margins through several cost-saving programs. In first-quarter fiscal 2016, both cost of sales and interest expense fell 3.6% year over year. The decrease in operating expenses supported 15.4% year-over-year earnings growth. Moreover, the company's aggregate operating profit during the quarter was up 21.9% year over year. Apart from successful reduction in costs, increased productivity, favorable volume and price mix were other major factors that boosted operating profit. Such aspects will likely widen the company's margins further in the quarters ahead. Moreover, per the company, the divestiture of Private segment is on track. We believe that successful spin-off of such a loss-making segment would support revenues and margins.

Bearish Factors

ConAgra faces intense competition from manufacturers of branded and customized food products. This reduces the company's price control over its products, which may trigger market share loss and result in lower sales and operating margins. The raw materials used in the food industry are exposed to market fluctuations, supply-demand inconsistency and change in governmental agricultural programs. These factors continue to raise the costs, thereby affecting the company's operations. To add to the woes, ConAgra's foreign business is, at present, adversely affected by unlikely appreciation of U.S. dollar.

Stocks to Consider

ConAgra carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry are Cal-Maine Foods, Inc. CALM , Omega Protein Corporation OME and Tate & Lyle plc TATYY . All the three stocks have a Zacks Rank #2 (Buy).

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CONAGRA FOODS (CAG): Free Stock Analysis Report

CAL-MAINE FOODS (CALM): Free Stock Analysis Report

OMEGA PROTEIN (OME): Free Stock Analysis Report

TATE & LYLE ADR (TATYY): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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