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Conagra Brands

Chicago, Illinois-based packaged foods company Conagra Brands reported better-than-expected earnings and revenue in the third quarter of the fiscal year 2021, largely driven by continued elevated at-home food consumption due to the COVID-19 pandemic.

The world’s leading food company said its net sales surged more than 8% to $2.77 billion during the three months ended on February 28, 2021. That was above the market expectations of $2.72 billion. Adjusted earnings per share came in at 0.59, beating analysts’ consensus estimates of 0.58 per share.

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Net sales for the grocery & snacks segment increased 10.8% to $1.1 billion in the quarter reflecting: a 2.3% decrease from the impact of the Sold Businesses; and a 13.1% increase in organic net sales. On an organic net sales basis, volume increased 9.4% and price/mix increased 3.7%. Volume benefited from continued elevated at-home food consumption as a result of the COVID-19 pandemic.

Conagra Brands forecasts organic adjusted operating margin in the range of 14% to 15% and adjusted EPS between $0.49 to $0.55 in the fourth quarter of the fiscal year 2021. For fiscal 2022, the company expects net sales growth (3-year CAGR ending fiscal 2022) of +1% to +2%, an adjusted operating margin of 18% to 19%, and adjusted EPS of $2.63 to $2.73.

Conagra Brands’ shares, which about 6% in 2020, traded nearly flat at $37.19 on Thursday.

Executive Comments

“We remain confident that each of our retail domains – frozen, snacks, and staples – is well-positioned to sustain the benefits of the eat-at-home habits consumers have developed during the COVID-19 pandemic. Our continued business momentum, coupled with our disciplined approach to investment, reinforce our confidence in the long-term potential of the business and our ability to create sustained value for our shareholders,” said Sean Connolly, president and chief executive officer of Conagra Brands.

“We further demonstrated this confidence by repurchasing nearly $300 million of our common stock this quarter, which came after we raised our quarterly dividend 29% earlier this fiscal year.”

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Analyst Comments

Conagra Brands (CAG) Q3 EPS of $0.59, slightly ahead of cons. $0.58, driven by below-the-line items. Org. sales growth beat (+9.7% vs. +7.3%), although gross and op. margins missed, albeit at the low end of mgmt’s Q3 guide. FY’22 guidance reaffirmed with 8.8mm shares repo’d in Q3, which could add $0.05 to FY’22 EPS. Q4 guide above cons. sales, but below on implied op. profit at margin guide midpoint, driven by cost inflation. The question now on margin progression in FY’22,” noted Rob Dickerson, equity analyst at Jefferies.

Conagra Brands Stock Price Forecast

Three analysts who offered stock ratings for Conagra Brands in the last three months forecast the average price in 12 months of $37.00 with a high forecast of $40.00 and a low forecast of $34.00.

The average price target represents a -0.40% decrease from the last price of $37.15. Of those three analysts, one rated “Buy”, one rated “Hold” and one rated “Sell”, according to Tipranks.

Morgan Stanley gave the base target price of $38 with a high of $48 under a bull scenario and $25 under the worst-case scenario. The firm gave an “Equal-weight” rating on the packaged foods company’s stock.

“Advantaged legacy Conagra Brands (CAG) topline growth outlook: Exposure to frozen, an opportunity to turnaround refrigerated business, and snacking growth should sustain LSD org sales growth. PF deal increases operational complexity and reduces fundamental visibility: Greater risk of PF disappointing given higher expectations from management’s strong turnaround track record,” noted Pamela Kaufman, equity analyst at Morgan Stanley.

“We see solid topline growth but limited potential for mid-term target upside: Opportunity to close gross margin gap vs peers, but see downside risk if topline/synergy estimates fall short of optimistic F22 targets. The valuation reflects higher leverage: 10.5x 2022 EV/EBITDA valuation reflects relatively higher leverage of 3.6x net debt/EBITDA.”

Several other analysts have also updated their stock outlook. Conagra Brands had its price target boosted by Credit Suisse Group to $34 from $33. They currently have an underperform rating on the stock. Zacks Investment Research upgraded Conagra Brands to a hold rating from a sell rating and set a $36 price objective. Jefferies Financial Group issued a buy rating and a $41 price objective for the company.

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