Conagra (CAG) stock is soaring on Friday, after the famed activist group Jana Partners announced a 7.2% stake in the packaged foods giant. Jana is also lobbying for two board seats.
As of this writing, shares of CAG have gained 10% on the news.
But one wonders: Apart from reporting its own stake, what can Jana actually do to stimulate the CAG stock price?
It would seem that Jana has a plan in mind after taking a $540 million stake in Conagra, the exactly details of the plan remain to be seen. In Jana Partners’ previous big-time activist moves, the end game has been a little more clear.
Let’s outline a few things we do know about the current situation. First off, if we briefly look at some of Jana’s previous positions, we can get a better idea about how successful the hedge fund’s track record has been.
No, Jana Hasn’t Been Flawless
As of Jana Partners’ last quarterly filing, Qualcomm (QCOM) was the firm’s single largest holding at $2.3 billion. Shares in the chipmaker are down 15% in the last year and 10% year-to-date, despite Jana pressuring QCOM to split its chip division and its patent-licensing division into two separate companies.
On Feb. 23, Jana disclosed a 5.9% stake in Computer Sciences Corporation (CSC). And though CSC stock jumped 7% on the news, shares have since given up nearly all of those initial gains, and a rumored plan to sell the company hasn’t materialized.
Oh, and earlier this month, CSC was charged with accounting fraud and fined $190 million.
Not exactly a fairy-tale ending. But what about Conagra?
CAG Stock Doesn’t Scream “Value”
Conagra revenue is expected to fall 10% this fiscal year, and another 1% in fiscal 2016. Analysts are looking for earnings to simply go sideways in fiscal 2015, and grow by a meager 4% clip next year.
In other words, CAG isn’t really a growth stock. And with Big Food facing big problems as consumers increasingly migrate away from packaged, processed foods in favor of organic grub, the fact that Conagra stock trades for 19 times forward earnings seems more than a little bit optimistic.
Despite its bleak growth prospects, CAG stock is up 17% in 2015 and 46% in the last year.
Jana Doesn’t Like the Ralcorp Acquisition
In pretty much the only hint we have about Jana’s mindset, the hedge fund complained about Conagra’s 2013 acquisition of Ralcorp, a private and branded foods company which owned the Post cereal brand and a wide portfolio of other food brands.
Saying only that it thinks shares of CAG stock are “undervalued and represent an attractive investment opportunity,” Jana proceeded to rail on the Ralcorp acquisition:
“…the acquisition of Ralcorp Inc. in January 2013, which in JANA’s opinion was the most significant recent strategic decision made by the Issuer’s Board of Directors (the “Board”), has been followed by disappointing performance for shareholders, repeated guidance misses, negative revisions to long term earnings targets, no dividend per share growth, and operating performance challenges. Issues with this acquisition led to the Issuer taking a $1.3 billion impairment on March 26, 2015, after which JANA began purchasing the Shares and analyzing opportunities for improved shareholder value creation.”
This could imply that Jana wants to sell Ralcorp and undo the deal, an idea floated by Bloomberg in September 2014. The article, entitled “ConAgra’s Ralcorp Flop Invites Breakup Talk,” even said that CAG stock could “draw the attention of activist investors.”
Well it has, and now its time for Jana to stir up some change. But considering Jana’s spotty recent track record and Conagra’s unattractive valuation, I wouldn’t go chasing CAG stock on the news today.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
