Conagra(CAG) Seeking Alpha·2024-07-12 05:00Core Viewpoint - Conagra Brands presents a potential buying opportunity due to recent stock price decline and the defensive nature of its business amid a slowing economy and potential recession [1][9]. Stock Performance - Conagra shares recently traded around $31.50 but have pulled back to approximately $28, below the 50-day moving average of $29.85 and near the 200-day moving average of $28.39 [2]. Earnings Estimates and Financials - Consensus earnings estimates indicate low to mid single-digit growth rates for 2025 and 2026, suggesting a price-to-earnings ratio of about 10 times, significantly lower than the S&P 500 average of over 20 times [3]. - For FY 2024, EPS is projected at $2.63, reflecting a 5.12% decline year-over-year, with sales expected to be $12.08 billion, down 1.63% [4]. Recent Financial Results - In Q4 2024, Conagra reported a net loss of $567.3 million or $1.18 per share, but adjusted earnings were $0.61 per share, beating consensus estimates by $0.04 [5]. - Sales declines were noted in grocery and snacks (2.1%), refrigerated and frozen revenues (3.8%), and foodservice (3.9%), while international sales increased by 6.4% [6]. Debt Management - Conagra has approximately $8.68 billion in debt and $78.5 million in cash, but strong cash flows from the food industry mitigate some balance sheet concerns [4]. - The company repaid a $1 billion senior note in Q4 2024, reducing net debt by $777 million, or 8.5%, from fiscal 2023 [6]. Growth Catalysts - Focus on reducing expenses and debt could lower interest expenses and lead to stock multiple expansion [7]. - Potential for international expansion exists, as the international segment showed revenue growth despite being smaller compared to other segments [7]. Dividend Information - Conagra pays a quarterly dividend of $0.35 per share, yielding about 5%, with a payout ratio around 50%, indicating room for future increases [8]. Economic Outlook - Signs of a potential recession are increasing, with slowing job growth and rising consumer debt impacting sentiment [9]. - The Federal Reserve's expectation of declining interest rates could enhance the attractiveness of high-yield stocks like Conagra [10]. Competitive Landscape - The food industry is highly competitive, with peers investing more in marketing, and a trend towards fresh foods could impact frozen food sales [11]. - Conagra's slow growth may necessitate acquisitions to boost revenues, which carries inherent risks [11]. Summary - Conagra is viewed as a stable investment with a competitive yield, potential for capital gains, and price-to-earnings multiple expansion, particularly as interest rates decline and the defensive nature of the food industry becomes more appealing in a recessionary environment [12].