Indianapolis - Circa March 2018: ConAgra Brands manufacturing plant. ConAgra makes over 60 brands of food including Chef Boyardee, Jiffy Pop and Slim Jim I

Conagra Brands Hits Two-Month High After Upbeat Outlook

Conagra Brands, Inc. (CAG) jumped over 4% Tuesday after the packaged food giant surpassed Wall Street expectations and issued an upbeat forecast. The Chicago-based firm posted fourth-quarter fiscal 2020 earnings of 75 cents per share, easily eclipsing analysts’ expectation of 51 cents a share. The figure also grew 108% from the profit reported in the year-ago quarter. Meanwhile, revenue came in at $3.13 billion, well ahead of $2.39 billion reported in the March quarter last year.

Behind The Numbers

Management credited increased at-home food consumption resulting from the coronavirus pandemic and favorable pricing as major drivers for the better-than-expected quarterly result. Furthermore, the firm anticipates improving demand across its retail business in the first quarter of fiscal 2021 and reaffirmed its full-year earnings guidance range of between $2.66 and $2.76, outpacing analysts’ consensus forecast of $2.50 per share.

Analyst View

Last month, Jeffries analyst Rob Dickerson upgraded the company’s stock to ‘Buy’ from ‘Hold’ and lifted his price target by $10 to $41 a share – representing a 17% premium to Tuesday’s $35.17 close. Dickerson says more people eating at home over the next few years bode well for the packaged food giant.

“A reduction in CAG’s brand portfolio risk via higher at-home food consumption increases FY’22 target achievability, in our view, given further top-line tailwinds,” the analyst said. Dickerson also argues that the stock’s 15% relative P/E valuation discount relative to its U.S. food industry rivals is unjustified. As of July 1, 2020, the company trades at 15 times forward earnings, around 20% below its 5-year average multiple of 18 times.

More broadly, Wall Street analysts have a mostly bullish outlook for the stock, with 6 ‘Buy’ ratings, 9 ‘Hold’ Ratings, and 1 ‘Strong Buy’ rating. Interestingly, no analysts recommend selling the stock, indicating possible further upside in the months ahead.

Technical Outlook

Conagra now trades more than 35% above its pandemic-selloff low, placing it into bull market territory. Buyers piled into the stock after yesterday’s upbeat earnings report, driving the price to a two-month high on above-average volume. Furthermore, the MACD indicator crossed back above its trigger line to generate a buy signal. The breakout may result in a retest of the multiyear high around $42. Alternatively, if the breakout fails, look for a decline to $31, where price finds a confluence of support from the April and September 2019 swing highs, and rising 200-day simple moving average.

CAG Chart