Long-established in the Consumer Packaged Goods industry, Conagra Brands Inc (CAG, Financial) has enjoyed a stellar reputation. However, it has recently witnessed a daily loss of 1.12%, juxtaposed with a three-month change of 0.42%. Fresh insights from the GF Score hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Conagra Brands Inc.
What Is the GF Score?
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- Financial strength rank: 4/10
- Profitability rank: 6/10
- Growth rank: 3/10
- GF Value rank: 7/10
- Momentum rank: 1/10
Based on the above method, GuruFocus assigned Conagra Brands Inc the GF Score of 61 out of 100, which signals poor future outperformance potential.
Understanding Conagra Brands Inc Business
Conagra Brands Inc is a packaged food company that operates predominantly in the United States, accounting for over 90% of its fiscal 2024 revenue. The company boasts a market cap of $12.59 billion and reported sales of $11.93 billion, with an operating margin of 4.09%. Conagra's revenue primarily stems from frozen food brands like Marie Callender's, Healthy Choice, Banquet, and Birds Eye. Additionally, it offers snacks, shelf-stable staples, and refrigerated food through brands such as Duncan Hines, Hunt's, Slim Jim, Vlasic, Orville Redenbacher's, Reddi-wip, Wish-Bone, and Chef Boyardee. The company primarily sells through the US retail channel, with just 9% of fiscal 2024 revenue coming from international markets and 10% from foodservice.
Financial Strength Breakdown
Conagra Brands Inc's financial strength indicators present some concerning insights about the company's balance sheet health. Conagra Brands Inc has an interest coverage ratio of 1.13, which positions it worse than 91.36% of 1,459 companies in the Consumer Packaged Goods industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. It's worth noting that the esteemed investor Benjamin Graham typically favored companies with an interest coverage ratio of at least five.
The company's Altman Z-Score is just 1.69, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.01 indicates a struggle in handling existing debt levels.
Additionally, the company's debt-to-Ebitda ratio is 7.48, which is above Joel Tillinghast's warning level of 4 and is worse than 86.81% of 1,494 companies in the Consumer Packaged Goods industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where Conagra Brands Inc seems to falter, as evidenced by the company's low Growth rank. Over the past five years, Conagra Brands Inc has witnessed a decline in its earnings before interest, taxes, depreciation, and amortization (EBITDA). The three-year growth rate is recorded at -12.8%, while the five-year growth rate is at -3.1%. These figures underscore potential challenges in the company's profitability.
Lastly, Conagra Brands Inc predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
In conclusion, Conagra Brands Inc's financial strength, profitability, and growth metrics, as highlighted by the GF Score, suggest a challenging road ahead for the company. The firm's low rankings in key areas such as financial strength and growth indicate potential underperformance in the future. Investors should carefully consider these factors when evaluating the company's prospects. For those seeking companies with stronger GF Scores, GuruFocus Premium members can explore more options using the following screener link: GF Score Screen.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
