Conagra Brands’ (CAG) impressive performance on the bottom-line front and expanded adjusted operating margin in the third quarter will likely support the stock. Conagra Brands’ top line will likely sustain the momentum due to benefits from the acquisition of Pinnacle Foods. Conagra Brands’ organic sales are expected to improve due to increased volumes and pricing.
Conagra Brands stock is trading at a multiyear low valuation. Conagra Brands stock is trading at a forward PE ratio of 11.3x, which is ~33% lower than its two-year average multiple of 16.9x.
Despite the improved sales and operating margin outlook and low valuation, pressure on Conagra Brands’ earnings could limit the upside. Conagra Brands’ adjusted EPS is expected to remain low, which reflects increased input and logistics costs and higher interest expenses. The higher outstanding share count is still a drag.