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Conagra Rallies More Than 35% in 6 Months on Solid Demand

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While coronavirus has disrupted several economic activities, there are many consumer staple companies that appear to be on safe grounds. In fact, many of these companies are benefiting from the burgeoning demand amid the pandemic-led increased at-home consumption and pantry-loading trends. One such player riding on such trends is Conagra Brands, Inc. (CAG - Free Report) , whose shares have risen 35.5% in the past six months, outshining the industry’s growth of 9.6%.

Also, this Zacks Rank #2 (Buy) stock has comfortably outperformed the S&P 500 and the Zacks Consumer Staples sector’s respective increases of 9.1% and 3.5% in the same time frame. This renowned food company’s VGM Score of B is another attraction. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Pandemic-Led Demand Aids

The company has been benefiting from the rising demand amid the coronavirus-led stockpiling of essential items and increased at-home consumption. These trends also drove Conagra in fourth-quarter fiscal 2020, with both top and bottom lines surging year over year and beating the Zacks Consensus Estimate. Results were backed by increased organic sales, which in turn benefited from higher at-home consumption amid the pandemic, driving Conagra’s retail business. This also helped the company offset softness in the Foodservice segment, wherein sales fell due to COVID-19.

Other food stocks like General Mills (GIS - Free Report) , Kellogg (K - Free Report) and B&G Foods (BGS - Free Report) , to name a few, are also benefiting from the increased demand trends. Conagra’s sales were backed by a solid e-commerce business, considerable consumer trials, robust repeat sales and initial launches of fiscal 2021 planned innovation. Notably, sales grew across Staples, Frozen and Snacks categories. Also, the share of e-commerce sales as part of overall sales increased, which reflects that the company’s focus on enhancing e-commerce capacity is yielding results. Apart from this, an additional week aided the performance.

The company continued to see a considerable increase in demand in the retail business in the first quarter of fiscal 2021 (till Jun 30). Considering all factors and assuming a smooth supply chain, management expects organic sales growth of 10-13% in the first quarter of fiscal 2021. Adjusted operating margin is likely to be 17-17.5%, while adjusted EPS is envisioned between 54 cents and 59 cents.

Growth Drivers

Conagra has been benefiting from a robust brand portfolio, thanks to its focus on innovation and yielding buyouts. In this context, the company, on Jul 9, had announced plans to launch more than 24 different types of products. The entire assortment is in sync with evolving trends such as plant-based meals as well as keto-friendly diets. Moreover, the launch comes at a time when consumers are resorting to at-home consumption to fight the novel coronavirus. Further, the company’s buyout of Pinnacle Foods (October 2018) has been yielding. The consolidation of these food companies has helped create a robust portfolio of leading, iconic and on-trend brands. Further, the move is aiding to speed up innovation and exploit the long-term benefits in the frozen foods space.

Markedly, Conagra has been focused on boosting the Frozen and Snacks businesses. In the fourth quarter of fiscal 2020, total Conagra Frozen retail sales rallied 26.2%, with strength in all categories, such as single-serve meals, multi-serve meals, vegetables and plant-based meat alternatives. Frozen has indeed picked up more pace in the current situation, wherein the pandemic has caused consumers to stock up and eat at home. Snacks business sales gained 20.1% despite certain headwinds associated with COVID-19. The quarter also saw a robust Staples business performance, thanks to the pandemic-led demand.

All said, Conagra appears to be in solid shape and is most likely to keep its impressive show on.

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