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Conagra Stock Is Outperforming Peers: Will the Trend Continue?

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May. 13 2019, Published 3:18 p.m. ET

Stock performance so far this year

Conagra Brands stock has risen 25.4% since it announced stronger-than-expected fiscal 2019 third-quarter earnings on March 21. Moreover, CAG stock is up 34.5% on a YTD (year-to-date) basis as of May 10. In comparison, other major food stocks have also marked strong gains so far this year. J.M. Smucker (SJM), General Mills (GIS), Mondelēz International (MDLZ), Hershey (HSY), and Campbell Soup (CPB) stock are up 35.7%, 32.4%, 29.6%, 18.4%, and 17.4%, respectively,

Incremental sales from their recent acquisitions, margin expansion, and projected improvement in the base business are driving the stocks of the packaged food makers higher. Also, packaged food companies were trading at low valuation multiples, which further supported the uptrend.

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What’s next for CAG stock?

Conagra Brands impressed markets with its financial performance during the last quarter, which supported the upside in the stock. Despite the strong double-digit increase in its stock price, Conagra’s current valuation is still within reach. CAG stock trades at a forward PE multiple of 13.8x, which is about 19% lower than its four-year average multiple of 17.0x. Also, CAG stock trades a discount of 11% when compared with the peer group average of 15.5x. General Mills, Campbell Soup, J.M. Smucker, and Kellogg (K) are trading at forward PE multiples of 15.8x, 15.7x, 15.2x, and 15.2x, respectively.

Conagra Brands’ sales are expected to mark strong gains driven by incremental sales from its Pinnacle Foods acquisition. Meanwhile, improvement in the base business and productivity savings are expected to support its operating margin. Wall Street expects Conagra Brands’ earnings to return to a growth trajectory in the fiscal 2020 third quarter, which is positive. However, Conagra Brands missed analysts’ sales estimates in the past three quarters.

Also, Conagra Brands’ earnings are expected to decline in the coming quarters owing to increased interest costs, which in turn, could limit the upside in its stock.

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