Conagra Foods Flying, Despite Inflationary Challenges
Foods giant Conagra Foods (CAG), which features such brands as Healthy Choice, Hunt’s, and hot dog legend Hebrew National, posted its earnings report recently. The company managed to turn in beats on all fronts. Some were more narrow than others, however, and the company also pointed out the problems inflation is having on the company. Despite these issues, I remain bullish on Conagra Foods.
Conagra’s year was mostly one of plateaus. The company has had some ups and downs in its share price, but has held very close to one pricing level. Most of 2021 for Conagra Foods saw shares priced between $34 and $38 per share. It’s broken out of that range occasionally, but it tends to return to that range. The company’s shares spent March through mid-June in the $36 to $38 range, with a week in June spent just above $38. After June 30, however, the company’s closing prices slipped back under $36 and stayed there to this day. (See Conagra stock charts on TipRanks)
The company’s newest earnings report gave the company extra credibility. It beat estimates on earnings, if somewhat narrowly. The company posted adjusted earnings of $0.50 per share against estimates calling for $0.49 per share. Revenue also proved to be a win for Conagra, as the company posted revenue of $2.65 billion. Though that was down a bit against last year’s figure of $2.68 billion, it was enough to take down Refinitiv’s estimates that called for $2.54 billion.
In specific categories, Conagra posted noticeable declines in the amount of frozen foods and snacks sold. Groceries and snacks were down 4.9% against the same time last year, and frozen foods were down 2.5%. That could be a result of COVID petering out, as pandemic-related stocking up had marked the summer of 2020. Also, although some businesses reopened this past quarter, they often faced occupancy restrictions thanks to social distancing requirements. That could have impacted on the amount of food consumers purchased.
Wall Street’s Take
Wall Street consensus analysis calls Conagra a Moderate Buy. That’s based on the reports of 11 Wall Street analysts who have offered 12-month price targets for Conagra within the last three months. Of these, three call Conagra a Buy while the remaining eight call it a Hold.
Conagra’s Moderate Buy status is comparatively new. It’s only enjoyed that rank since July, when it switched over from being a Hold. Conagra was considered a Hold since January 2021, when it switched over from being a Moderate Buy.
The average Conagra price target is in a very narrow range. Interestingly, the price target range largely reflects the company’s trading range, with a little room for improvement. The average price target is $37.09, with a high of $40 and a low of $34. Based on the last-seen price of $33.72, that represents a 9.99% upside potential.
Food is a Staple
You’ll notice that Conagra has traded in a very tight range for most of the year. That makes sense at the outset. Conagra is not the kind of company that’s likely to innovate so brilliantly that it destabilizes the market. What’s it going to do, come up with a whole new flavor of corn? Food is food, and all Conagra can do to really affect its market is persuade more people to buy its food offerings.
So we’ve seen Conagra hold a fairly tight trend line for most of a year. That’s a statement made in heaven for one particular class of investor: income investors. Conagra has an extremely regular dividend, going back years. Dividend payments have been mostly regular, with one missing from 2013, one changed in date in 2020 from the more typical July to early August, and the summer payment seemingly absent from this year. Dividend payments have increased as well, slowly but surely, over the years. Back in July 2011, the company offered a dividend of $0.23. Today, the payment with an ex-dividend date of October 29 will be around $0.31.
A stock with minimal appreciation and decline, as well as a fairly stable dividend that increases regularly, is likely what a lot of income investors are looking for. Add to it that the price to get in isn’t exactly onerous, and it’s certainly worth considering for an income investor’s portfolio. The fact that the company’s entire stock in trade is food insulates it from all but the most devastating economic conditions. People can postpone cruises and vacations. They can put off fancy new electronics purchases. Most people, however, don’t put off food purchases if at all possible.
Conagra has a distinct advantage in the marketplace, in that it sells a product people need for sustenance. While it certainly has competitors—and some lower-priced—its susceptibility to market conditions is low, overall. Throw in a reliable dividend with regular increases, and that makes Conagra very attractive to some investors.
Conagra’s market is comparatively secure. It’s only somewhat price sensitive due to the vital nature of its product. Its share price trend line is about as stable as it gets and its dividend is likewise. For income investors, Conagra is a great place to start looking, and a big part of why I’m bullish on it.
Disclosure: At the time of publication, Steve Anderson did not have a position in any of the securities mentioned in this article.
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