Conagra Brands Forecast 13% jump in Q1 Organic Sales; Shares Jump 6%

Conagra Brands Inc, an American packaged foods company headquartered in Chicago, said that it predicts more than 10% rise in organic net sales this quarter after the company beat Q4 revenue projections on solid demand for frozen foods and snacks amid coronavirus-led lockdowns, sending shares of the processed and packaged foods maker up 6%.

The company’s fourth-quarter net sales increased 25.8%; organic net sales increased by 21.5%, with double-digit growth in each of the Company’s three retail segments. Fiscal 2020 net sales increased by 15.9%, and organic net sales increased 5.6%, the company said.

Diluted earnings per share from continuing operations (EPS) for the fourth quarter grew 57.7% to $0.41, and adjusted EPS more than doubled to $0.75. EPS for fiscal 2020 grew 12.4% to $1.72, and adjusted EPS grew 13.4% to $2.28. The Company projected first-quarter fiscal 2021 of organic net sales growth in the range of 10% to 13%, adjusted operating margin in the range of 17.0% to 17.5%, and adjusted EPS in the range of $0.54 to $0.59.

Following this announcement, Conagra Brands shares climbed 6% premarket after earnings beat past estimates.

Although several U.S. states have started to ease lockdowns, the demand for packaged foods remains high in the current quarter, since consumers prefer to cook by themselves rather than venturing out as fears of coronavirus remain high.

Sean Connolly, president and chief executive officer of Conagra Brands, said in a press release, “Our business clearly benefited from increased at-home eating in the fourth quarter, as the elevated retail demand outweighed the reduced foodservice demand. In retail, many consumers tried our modernized products for the first time and then returned for more.”

“While we are optimistic about the long-term implications of recent consumer behaviour shifts, given COVID-19 uncertainties, we are only providing guidance for the first quarter of fiscal 2021. We intend to provide an update on our fiscal 2021 outlook next quarter,” he added.

Conagra Brands outlook and price target

Ten analysts forecast the average price in 12 months at $36.00 with a high of $41.00 and a low of $32.00. The average price target represents a 6.82% increase from the last price of $33.70, according to Tipranks. From that ten, four analysts rated ‘Buy’, six rated ‘Hold’ and none rated ‘Sell’.

Morgan Stanley target price is $32 with a high of $44 under a bull scenario and $22 under the worst-case scenario. JP Morgan raised price target to $39 from $34 and Deutsche Bank raised the target price to $32 from $31. On the technical chat, 50-day Moving Average and 100-200-day MACD Oscillator signals a strong buying opportunity.

Analyst comment

“Exposure to frozen, opportunity to turnaround the refrigerated business, and snacking growth should sustain LSD org sales growth,” wrote Pamela Kaufman, equity analyst at Morgan Stanley in his last month’s note.

“We see solid HSD EPS growth but limited potential for mid-term target upside: Opportunity to close gross margin gap vs peers but see downside risk if topline/synergy estimates fall short of optimistic F22 targets,” she added.