Neutral Stance on ConAgra - Analyst Blog
October 01 2012 - 11:35AM
Zacks
We currently maintain our Neutral
recommendation on ConAgra Foods Inc. (CAG), a
leading processed and packaged food company with brands in over 97%
of North American households.
We believe things are working in
ConAgra Foods’ favor as the company posted solid earnings surprise
in the last four trailing quarters—average surprise being 11%. The
recently concluded fiscal first quarter 2013 impressed all as
adjusted earnings per share from continuing operations of 44 cents
exceeded the year-ago earnings of 31 cents and surpassed the Zacks
Consensus Estimate by 25.7%.
Net sales grew 6.7% year over year
to $3,312 million, based on improved pricing, moderating inflation
and contribution from acquired businesses. Operating margins also
improved in the quarter.
Remarkable fiscal first quarter
2013 results and expectations of higher earnings growth through
contributions from acquired businesses, continued growth in Lamb
Weston potato operations, and margin management made the company
raise its fiscal 2013 guidance. Earnings per share growth are now
expected to be within 10%-12% in fiscal 2013, as against 6%-8%
expected earlier.
Also, quarterly dividend rate
increase and expansion plans in Russellville, Arkansas have made
the company an attractive stock to look out for. However, the image
gets a bit blurry with the rising competitiveness in the food
industry, especially from the private label suppliers and
producers. This is anticipated to lay an impact on the company’s
market share and sales.
Adding to the peril is the rising
cost of various raw materials, such as wheat, corn, oats, soybeans,
beef, pork and poultry used by the company. The prices of these raw
materials are at an all time high and are predicted to induce a
negative impact on profits for the company.
Considering all these, we prefer to
remain on the sidelines for ConAgra Foods. The stock bears a Zacks
#2 (Buy) Rank while its prime competitors HJ HEINZ CO. (HNZ) and
Kraft Foods Inc. (KFT) carry a Zacks #3 (Hold)
Rank.
CONAGRA FOODS (CAG): Free Stock Analysis Report
HEINZ (HJ) CO (HNZ): Free Stock Analysis Report
KRAFT FOODS INC (KFT): Free Stock Analysis Report
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