For some time now, ConAgra Brands has been a great value pick for income investors. The company is proving that the consumer staple are where risk-averse investors want to be by performing better than the top and bottom line. The best news coming out of the FQ1 report is that share prices fell almost 4% despite the good news and are back within a buying zone that has been a buying zone for institutional investors for the last 18 months or so. The institutions own almost all of the stock at the moment, and it looks like that figure could grow. This stock pays a safe 3.9% yield and trades at only 13X its earnings, making it one of the best value combinations in the sector.
MarketBeat.com - MarketBeat During the first quarter, the strength of our brands resulted in strong sales and adjusted operating profit. As we navigate inflationary pressures and supply chain challenges, we continue to deliver improved service and productivity. ConAgra CEO Sean Connolly said that the company's confidence in its outlook for the balance of the fiscal year remains unchanged.
The value of the company's strategy was demonstrated in the first quarter of the year. The portfolio was changed to focus on the upper-tier brands before the COVID-19 epidemic began. The company reported $2.9 billion in net revenue for a gain of 9.4% over last year, 8% in the two-year stack, and 22% versus the prepandemic-2019 period. The strength was caused by a 9.7% increase in organic sales. The organic sales were driven by a 14.3% increase in price and a 4.6% decline in volume that was less than anticipated.
The decline in margin and net loss on a GAAP basis is due to non-cash impairments that have no bearing on the cash flow. On an adjusted basis, the operating margin came in at 13.7% and was compounded by a decline in share count that left the adjusted earnings per share up 14 percent. There is a positive outlook for the rest of the fiscal year after the earnings beat the consensus by a nickel. The company expects margins to improve to 15% by the end of the year, despite some weakness in the second quarter. The consensus estimate for revenue growth is 4% to 5% and for earnings per share is 1% to 5%.
The analysts are holding on to ConAgra brands. The one that stands out is from Evercore ISI. The Wall Street high price target of $40 is 20% above the current price action and they have an Outperform rating on ConAgra. A move up to the top of the range, if not a move up to the $40 level, is expected within the next few quarters.
Factors supporting FY23 earnings growth include relative pricing power in frozen entree and snacks, stable overall portfolio share trends, improving pricing net of commodity inflation, some easing in supply chain and friction cost comparisons in the 2H, and higher A&P spend.
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