The stock of Conagra Brands (NYSE:CAG, 30-year Financials) appears to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $37.59 per share and the market cap of $18 billion, Conagra Brands stock is estimated to be fairly valued. GF Value for Conagra Brands is shown in the chart below.
Because Conagra Brands is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 8% over the past three years and is estimated to grow 0.99% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Conagra Brands has a cash-to-debt ratio of 0.01, which which ranks in the bottom 10% of the companies in the industry of Consumer Packaged Goods. The overall financial strength of Conagra Brands is 4 out of 10, which indicates that the financial strength of Conagra Brands is poor. This is the debt and cash of Conagra Brands over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Conagra Brands has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $11.7 billion and earnings of $2.43 a share. Its operating margin is 16.03%, which ranks better than 86% of the companies in the industry of Consumer Packaged Goods. Overall, the profitability of Conagra Brands is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Conagra Brands over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Conagra Brands is 8%, which ranks better than 71% of the companies in the industry of Consumer Packaged Goods. The 3-year average EBITDA growth rate is 11.3%, which ranks better than 67% of the companies in the industry of Consumer Packaged Goods.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Conagra Brands's ROIC was 7.14, while its WACC came in at 5.95. The historical ROIC vs WACC comparison of Conagra Brands is shown below:
In conclusion, The stock of Conagra Brands (NYSE:CAG, 30-year Financials) shows every sign of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 67% of the companies in the industry of Consumer Packaged Goods. To learn more about Conagra Brands stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
