On Dec 29, 2014, we issued an updated research report on premium consumer goods firm ConAgra Foods, Inc. (CAG). The company is one of the leading food companies in North America. Serving grocery retailers, restaurants and other foodservice establishments, the company has its brand presence in 97% of American households. However, tough competition in the industry along with external market volatilities remain causes of concern for the company.
Bullish Factors
In the second quarter of fiscal 2015, ConAgra’s adjusted earnings came in line with the Zacks Consensus Estimate. The company expects to report higher earnings in the upcoming quarters on the back of strategic organic and inorganic growth plans. Furthermore, on expectations of growing demand for frozen potato products, ConAgra is making concerted efforts to organically expand its Lamb Weston trade.
ConAgra’s senior long-term debt was down 12.8% from the prior-year value. By the end of the current fiscal year, the company aims to lower its debt by another $2 billion. New product and market development initiatives have temporarily lowered the cash position of ConAgra. However, going forward, the company expects to witness the benefits of these investments. Aiming to strengthen its balance sheet in fiscal 2016, ConAgra has promised to reward its shareholders through new share repurchase and dividend hike programs.
Bearish Outcomes
ConAgra operates in a highly competitive industry, where it faces intense rivalry from manufacturers of branded, private brand and customized food products. This reduces the company’s price control over its products, which may result in market share loss and fall in sales and operating margins.
Moreover, various raw materials used in the food industry, such as wheat, corn, oats, soybeans, beef, pork and poultry, are exposed to market price volatilities, supply-demand inconsistency, currency fluctuations and change in governmental agricultural programs. These factors, we believe, will continue to raise the costs, thereby affecting the company’s operations.
ConAgra currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Aramark (ARMK), The Hain Celestial Group, Inc. (HAIN) and United Natural Foods, Inc. (UNFI). While Aramark sports a Zacks Rank #1 (Strong Buy), both Hain Celestial Group and United Natural Foods hold a Zacks Rank #2 (Buy).
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