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Conagra Brands Stock Drops ~12% on Disappointing Q4 Results

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Q4 snapshot

Conagra Brands (CAG) stock fell 12.1% on Thursday, June 27, after the company’s weaker-than-expected fourth-quarter 2019 results. Conagra Brands’ revenues missed Wall Street’s consensus estimate, reflecting a negative impact from the foreign exchange rate, weak organic sales, and divestitures. However, net sales continued to grow at a steady double-digit rate, reflecting incremental sales from Pinnacle Foods’ acquisition.

Fiscal fourth-quarter margins remained subdued, reflecting investments with retailers to support its brands, continued inflation in input cost, and dilution from Pinnacle Foods’ acquisition.

Weak underlying sales and margin contraction pressured the company’s bottom line. Meanwhile, an increase in interest expenses and higher outstanding share count lowered its fourth-quarter earnings further. Conagra Brands’ adjusted EPS registered double-digit declines and missed Wall Street’s consensus estimate.

What’s in the offing for CAG stock?

Conagra Brands’ weak fourth-quarter performance is likely to pressure its stock in the near term. However, given the strong selling in the stock, Conagra Brands looks cheap on the valuation front. CAG stock is trading at a forward PE multiple of 11.9x, which looks attractive based on the projected growth rate of 6% in its fiscal 2020 adjusted EPS and a current dividend yield of ~3%. However, weakness in the base business and pressure on margins are expected to hurt the company.

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