Monday's stocks to watch: HAL, HAS, AAPL >>> READ MORE

ConAgra Stock Still Waiting for Ralcorp Bounce

Time to sell CAG on any bounce


Welcome to the Stock of the Day. Before the opening bell Thursday, ConAgra Foods (CAG) shares rose after it reported surprisingly strong third-quarter earnings. Does this signal a turnaround for ConAgra, which has struggled in the increasingly competitive food industry?

Find out in today’s Stock of the Day.

Company Profile

ConAgra’s claim to fame is that its products are found in 97% American households. This isn’t surprising, considering that this company produces everything from Hunt’s ketchup to Orville Redenbacher’s popcorn to PAM cooking spray.

A $15.5 billion business that employs 34,800 worldwide, ConAgra is the fourth largest player in the Processed & Packaged Goods industry. In early 2013, ConAgra completed its buyout of Ralcorp Holdings (RAH) making the combined company one of the largest packaged food players on the continent.

Earnings Buzz

ConAgra posted better than expected third-quarter earnings before the opening bell today. Compared with the year ago quarter, net income nearly doubled to $234.4 million, or 55 cents per share. Adjusted earnings weighed in at 62 cents per share, which topped the 60 cents per share consensus estimate by 3%.

Over the same period, net sales jumped 15% to $4.39 billion; this missed the $4.40 billion estimate by a hair. Management also reaffirmed its fiscal 2014 outlook. The company expects adjusted earnings in the range of $2.22 to $2.25 per share, within the $2.33 Street view.

The company also expects 10% annual earnings growth in the fiscal 2016 to 2017 period, partially due to synergies generated by the recent Ralcorp acquisition.

Competition Breakdown

As one of the larger packaged foods companies, ConAgra has some serious competition to contend with—including the likes of Mondelez International (MDLZ), the parent company behind Kraft (KRFT) brands. If you plug these two companies into my Portfolio Grader tool, you’ll see MDLZ is better rated at a C-rated hold. That’s because when you dig in the fundamentals, you see that Mondelez beats ConAgra in terms of operating margin growth and analyst earnings revisions. To top it off, MDLZ has stronger buying pressure, indicating a better risk-to-return ratio.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. For the first half of 2013, this Conservative stock was a buy. But last September, something interesting happened to this stock: Buying pressure plunged, sending CAG all the way down to a D-rated sell.

Currently, CAG receives an F-rating for its Quantitative Grade. Meanwhile, ConAgra’s fundamentals are somewhat mixed; while the company receives decent marks for sales growth, earnings momentum and return on equity, there’s plenty of room for improvement in terms of earnings growth (D), operating margin growth (D), earnings surprises (F) and cash flow (C). CAG receives a C for its overall fundamentals.

Bottom Line

As of this posting, I consider ConAgra stock a D-rated Sell. Because it will take the company some time to realize the benefits of the Ralcorp buyout, current shareholders should take this as an opportunity to sell on a bounce.

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!

Article printed from InvestorPlace Media,

©2017 InvestorPlace Media, LLC