Valuation within reach
In May, the 13% decline in Conagra Brands (CAG) stock made its valuation attractive. Conagra Brands shares are trading at a forward PE ratio of 12.9x, which is ~24% lower than its average historical multiple of 17.0x. Conagra Brands trades at a 25% discount to its peer group average of 17.3x. Hershey (HSY), Mondelēz International (MDLZ), General Mills (GIS), and J.M. Smucker (SJM), and Kellogg (K) shares are trading at forward PE ratios of 22.8x, 20.1x, 15.2x, 14.6x, and 13.7x, respectively.
Conagra Brands’ adjusted earnings are expected to stay low in the near term. Higher interest expenses and a rise in the outstanding share count will likely drag Conagra Brands down. However, the company’s bottom line is expected to return to growth in the second half of fiscal 2020 and mark strong gains.
Conagra Brands’ Pinnacle Foods acquisition, innovation, and higher pricing are expected to support its sales growth rate.
Analysts suggest a “buy”
Among the 13 analysts following Conagra Brands stock, ten recommended a “buy,” two recommended a “hold,” and one recommended a “sell.” Analysts have a consensus target price of $33.17 per share on Conagra Brands, which implies a potential upside of 23.9% based on its closing price of 26.77 on May 31.