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Nicholas Kitonyi
Nicholas Kitonyi
Articles (322)  | Author's Website |

Conagra Brands Rallies on Improved Profit Outlook

Company's stock price up 3.6% after pre-market earnings report

March 31, 2020 | About:

Shares of Conagra Brands Inc. (NYSE:CAG) gained 3.6% on Tuesday following the release of its latest earnings report. The company’s stock has experienced heightened levels of volatility over the last two weeks amid the coronavirus pandemic.

Conagra is now up more than 21% since March 12. It also experienced a 13.5% pullback between March 17 and March 23 before establishing a steady run, which continued after the announcement of its third-quarter 2020 results.

The food company appears to be one of the few to benefit from the growing lockdown crisis as countries look to mitigate the spread of Covid-19. The demand for the company’s groceries and snacks appears to be growing, with consumers rushing to stock their reserves amid uncertainty over how long the call for social distancing could last.

As advised by the White House coronavirus task force, President Trump has provided guidance of as early as April 30 as a target date to relax the lockdown rules. However, if Europe is to serve as a model, then it is clear that the lockdown in the U.S. could be extended further. Trump had hoped for mid-April, around the Easter holiday, before announcing the extension.

People have been stockpiling foodstuffs relentlessly amid the coronavirus fears. This has left the shelves of grocery stores around the world empty. The expected continuation of binge shopping will continue to benefit companies like Conagra. The company has already witnessed a significant increase in demand for the fourth quarter and now expects an improved top line and bottom line as well, which will boost full-year results.

Highlights from the third quarter

In the most recent quarter, Conagra reported earnings of 47 cents per share, a 7.84% drop from the same period last year. This was also below the consensus expectations of 49 cents per share based on analysts polled by FactSet. The company’s top line of $2.555 billion was also 5.62% lower than last year’s figures and below the consensus analyst estimate of $2.58 billion.

The slowdown in revenue and earnings saw the company lower earnings estimates for the year to $2.04 per share back in February. However, after a ramp up in demand during the early stages of the fourth quarter, Conagra is now optimistic that this will be enough to offset the slowdown.

Following the earnings announcement, CEO Sean Connolly said that while it is still early in the quarter, “on a quarter-to-date basis, shipments and consumption in our domestic retail business have increased" by about half, more than offsetting the effect of "worsening trends in our food-service business."

Conclusion

Conagra is expecting more than a 50% gain in domestic retail sales for the fourth quarter. This will boost the top-line, which will in turn trickle down to the bottom line. The company’s trailing price-earnings ratio of 16.78 is a little higher than the industry average. However, with the expected increase in demand, the company’s intermediate outlook has improved.

The forward 12-month price-earnings ratio is now 12.89 while the PEG ratio (five-year expected) is 1.9. The next few months will be interesting if the coronavirus-related stockpiling continues.

Disclosure: No positions.

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About the author:

Nicholas Kitonyi
Nicholas is the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on several research sites.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website


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