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ConAgra Hits 52-Week High on Burgeoning Frozen Potato Trade - Analyst Blog

Shares of North American food company ConAgra Foods, Inc. ( CAG ) hit a new 52-week high of $37.46 on Dec 11, 2014. The stock, however, closed the trading session slightly lower at $37.29. Since early 2014, the stock has gained roughly 14.6%. Despite its strong price appreciation, this Zacks Rank #3 (Hold) stock still has enough fundamentals that may further drive its price upward. The stock is currently trading at a forward P/E of 16.18x and has a long-term earnings growth expectation of 8.23%.

Growth Drivers

Since 1919, ConAgra has maintained a significant brand value in the North American market by offering premium non-imitable products to its clientele. The company has generated better-than-expected results in the last reported quarter. In the first quarter of fiscal 2015, ConAgra's adjusted earnings of 39 cents per share comfortably surpassed both the Zacks Consensus Earnings Estimate and the year-ago tally.

ConAgra also lowered its operating and interest expenses in first-quarter fiscal 2015. A significant fall in the company's debt burden helped to lower its interest charges by almost 12.6% year over year. Furthermore, the firm generated cash worth $226.2 million from its continuing operations in the reported quarter.

Recently, ConAgra's joint venture business with Netherlands' Meijer Frozen Foods has planned to shell out roughly $150 million for its frozen potato trade in Bergen op Zoom, the Netherlands. The new investment, likely to be utilized for construction of a secondary production line, would boost Lamb Weston / Meijer's potato producing capacity. Global frozen potato consumption is predicted to improve by 1.8 billion pounds through 2018. Standing at this juncture, ConAgra aims to tap the burgeoning demand for frozen potato products through a strategic dual sourcing model.

Also, ConAgra kick-started its first plant in China by inaugurating a new Lamb Weston potato dispensation facility in Shangdu, Inner Mongolia. The company had acquired the facility in July from TaiMei Potato Industries Ltd. in China. Expansion of Lamb Weston brand's trade in the Chinese market marks an effective growth initiative on the part of ConAgra. The new potato processing plant will serve to ensure an adequate supply of required products in the Chinese marketplace. The company also recruited a wide strength of workforce for the new plant.

Such inorganic business initiatives come in the wake of ConAgra's global growth strategy. In fiscal 2015, the company expects all segments to grow from their current performance levels. Moreover, the acquisitions of Ralcorp and TaiMei Potato Industry Limited are expected to yield higher return in the long run. The company is also making prospective investments in order to expand its business.

ConAgra anticipates annual earnings per share to grow by mid-single digits in fiscal 2015 and intends to repay roughly $1.0 billion of debt in the second quarter. Thus, a positive outlook and efficient business level growth strategies are escalating the value of the company's shares in the market.

Other Stocks to Consider

Other stocks in the industry that are worth considering include Aramark ( ARMK ), Pilgrim's Pride Corporation ( PPC ) and The Hain Celestial Group, Inc. ( HAIN ). While both Aramark and Pilgrim's Pride Corporation sport a Zacks Rank #1 (Strong Buy), The Hain Celestial Group holds a Zacks Rank #2 (Buy).

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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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