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UBS Rated ConAgra Brands as ‘Neutral’

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Price movement

ConAgra Brands (CAG) has a market cap of $21.7 billion. It rose 1.6% to close at $35.49 per share on November 14, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -5.1%, -3.6%, and 10.6%, respectively, on the same day.

CAG is trading 3.7% below its 20-day moving average, 0.75% below its 50-day moving average, and 1.4% above its 200-day moving average.

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Related ETF and peers

The iShares Russell 3000 ETF (IWV) invests 0.09% of its holdings in ConAgra Foods. The ETF tracks a cap-weighted index that measures the investable US equities market, covering the entire market-cap spectrum, including micro-caps. The YTD price movement of IWV was 8.5% on November 14.

The market caps of ConAgra Brands’s competitors are as follows:

  • General Mills (GIS) — $37.2 billion
  • J.M. Smucker (SJM) — $15.4 billion
  • TreeHouse Foods (THS) — $3.9 billion

ConAgra Brands’s rating

On November 14, 2016, UBS initiated the coverage of ConAgra Brands with a “neutral” rating and also set the stock’s price target at $36.00 per share.

According to analyst Steven Strycula, “Following the Nov 9th spin-off of Lamb Weston to shareholders, ConAgra is a leaner and less leveraged food manufacturer with ~1.5x net debt/EBITDA. From here ConAgra will take action to reshape its portfolio through synergy focused M&A and divesting underperforming brands using its $1.4b NOL asset.

“Operationally, ConAgra has significant heavy lifting ahead of it as the company rebases revenues to a more profitable core in FY 17, reinvigorates investment-starved brands, cuts SG&A spend by $200, and streamlines supply chain operations.”

Performance of ConAgra Foods in fiscal 1Q17

ConAgra Foods (CAG) reported fiscal 1Q17 net sales of $2.7 billion, a fall of 4.3% from the net sales of $2.8 billion in fiscal 1Q16. Sales of the Grocery & Snacks, Refrigerated & Frozen, International, Foodservice, and Commercial segments fell 5.4%, 8.1%, 5.7%, 1.0%, and 2.0%, respectively, between fiscal 1Q16 and fiscal 1Q17.

Its net income and EPS (earnings per share) rose to $186.2 million and $0.42, respectively, in fiscal 1Q17, compared with -$1.2 billion and -$2.65, respectively, in fiscal 1Q16. It reported EPS from continuing operations of $0.61 in fiscal 1Q17, a rise of 48.8% from fiscal 1Q16.

CAG’s cash and cash equivalents fell 4.8% and its inventories rose 3.5% between fiscal 4Q16 and fiscal 1Q17. Its current ratio rose to 1.44x and its debt-to-equity ratio fell to 2.4x in fiscal 1Q17, compared with 1.41x and 2.5x, respectively, in fiscal 4Q16.

This earnings report is the final one from ConAgra Foods, due to the spin-off that will result in ConAgra Brands and Lamb Weston. Next, we’ll look at Estée Lauder Companies (EL).

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