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On Apr 16, we maintained our long-term Outperform recommendation on ConAgra Foods, Inc. (CAG - Analyst Report), due to its strong fiscal third quarter results, ending Feb 24, 2013.

Why the Reiteration?

ConAgra’s earnings per share of 55 cents in fiscal third quarter of 2013, reported on Apr 3, improved 7.8% year over year. Also, ConAgra generated revenues of $3,850.5 million in the quarter, an increase of 13.4% year over year, driven by enhanced volumes and contributions from acquired businesses.

Since the announcement of the results, estimates have moved in either direction for fiscal 2013 and 2014. The current consensus estimate for fiscal 2013 rests at $2.15, unmoved over the last 30 days. However, for fiscal 2014, the current estimate increased 1.2% to $2.49 per share, over the same time frame.

The January acquisition of Ralcorp Holdings Inc. is blending well with ConAgra’s operations. In less than a month, Ralcorp’s contribution to the business was substantial; the company generated $292.0 million in sales and $22.0 million of operating profits in the reported quarter. Thus, ConAgra reaffirmed that Ralcorp will contribute roughly 5 cents per share to fiscal 2013 earnings and 25 cents per share to fiscal 2014 earnings.

The tie up of ConAgra with privately held Cargill Inc. and CHS Inc. announced in March 2013, to form a new mill - Ardent Mills, is also expected to boost earnings in the long-term. Subject to regulatory approvals, this new mill is expected to start in late calendar year 2013. This can boost the earnings for fiscal 2014 significantly.

However, we cannot rule out risks such as, overspending in marketing activities, increased competition as well as volatility in the raw material markets.

Other Stocks to Consider

ConAgra currently carries a Zacks Rank #2 (Buy). Other stocks worth a look in the food industry are Flowers Foods Inc. (FLO - Snapshot Report), carrying a Zacks Rank #1 (Strong Buy); while Campbell Soup Company (CPB - Analyst Report) carries a Zacks Rank #2 (Buy).

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