BRFS BRF SA

We currently maintained our Neutral recommendation on ConAgra Foods Inc. (CAG), a world leader in providing branded and value added food services. Headquartered in Omaha, the company had approximately 26,100 employees as of fiscal 2012 end.

The line of acquisitions for the company seems to merge well with its operations, achieving laudable results. In November 2012, the company announced its plans to acquire Ralcorp Holdings Inc., which is the largest private label food company in the US. Management expects cost synergies of roughly $225 million once the acquired company is fully integrated.

A significant contribution is expected from CongAgra Foods’ Lamb Weston potato business considering the trend in the past. Along with this, the company maintained a strict control on operating costs, striving to keep high margins.

However, it shouldn’t be overlooked that the company operates in a highly competitive industry, where the customers are price-sensitive. This could lead to a reduction in the prices of products and services despite an increase in the total costs, thereby squeezing the margins.

ConAgra’s results in the second quarter of 2013 showed signs of improvement based on the increase in the potato business, moderate inflation and contribution from acquired businesses. The company exited the quarter with a strong balance sheet.

Revenue for the reported quarter increased 8.9% year over year to $3,735.5 million. However, it was outshined by an 8.1% increase in the total costs. Earnings per share were 44 cents for the quarter. Operating margin was recorded at 8.4% as against 7.7% during the year-earlier quarter.

The current Zacks Consensus Estimate for the third quarter is 55 cents, an increase of roughly 7.3% year over year. Estimates for 2013 and 2014 are $2.09 and $2.30, respectively. These represent annual increase of 13.6% in 2013 and 10.1% in 2014.

Currently, we maintain a Neutral recommendation on ConAgra Foods Inc. The stock also bears a Zacks #2 (Buy) Rank, while its prime competitors H J HEINZ CO. (HNZ) and BRF Basil Food (BRFS) carry a Zacks #3 (Hold) Rank.

 
BRF-BRASIL FOOD (BRFS): Free Stock Analysis Report
 
CONAGRA FOODS (CAG): Free Stock Analysis Report
 
HEINZ (HJ) CO (HNZ): Free Stock Analysis Report
 
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