Back to top

Will Conagra's (CAG) Efforts to Reshape Portfolio Aid Stock?

Read MoreHide Full Article

Moving ahead with its efforts to reshape its portfolio, Conagra Brands, Inc. (CAG - Free Report) closed the previously announced sale of its Canadian Del Monte processed fruit and vegetable business to Bonduelle Group. The sale was valued at nearly $32 million, or C$43 million.

Conagra Brands announced its plan to sell the aforementioned business this February, as it remains focused on allocating resources to best strategic areas, which is likely to boost shareholders’ value. In this regard, the company has undertaken many strides in the past. We believe that such efforts will help the Zacks Rank #3 (Hold) company revive investors’ confidence in the stock that has been bearing the brunt of input cost inflation. In fact, Conagra has lost 5.1% in the past three months, against the industry’s 3.7% growth.

Let’s see if the company’s portfolio revamping efforts can provide respite.



Conagra On Track to Revamp Portfolio


To this end, Conagra Brands exited its struggling private label brands in 2015, as this business was bearing the brunt of soft volumes and flaring commodity costs. Thereafter, the company divested non-key businesses, including Spicetec and JM Swank, while it also executed Lamb Weston’s (LW - Free Report) spin-off in 2016. Further, on May 31, 2018, Conagra divested its Trenton, MO, production facility, owing to which the company’s Foodservice segment exited a co-manufacturing arrangement.

While these moves reflect Conagra Brands’ focus on discontinuing with underperforming or non-strategic ventures, the company also remains committed toward strengthening operations by acquiring businesses with solid growth potential. The most recent example in this connection is Conagra’s definitive deal to acquire Pinnacle Foods , which is expected to close by the end of 2018.

Notably, the combined giant is likely to be the second largest player in the frozen foods space. The consolidation of these food companies is likely to create a robust portfolio of leading, iconic and on-trend brands, which will help the combined entity speed up innovation and exploit the long-term benefits in the frozen foods space. The companies’ complementary portfolios, cultures and supply chain are likely to ease Pinnacle Foods’ integration into Conagra, which has a solid strategic buyout record.

To top it, Conagra anticipates to generate annual run-rate cost synergies of roughly $215 million, by the end of fiscal 2022. Also, Conagra Brands expects this deal to augment fiscal 2020 bottom-line growth by low-single digits, while adjusted EPS growth in fiscal 2022 is expected to receive a high single-digit boost. Clearly, this combination is likely to be a deemed fit, especially at a time when demand for the frozen foods and snacks category is perking up.

Apart from this, the company acquired Angie's Artisan Treats, LLC in October 2017, which should strengthen its snacking business. Also, Sandwich Bros’ buyout (completed in February 2018) is expected to underpin Conagra Brands’ frozen business. Clearly, these endeavors are likely to aid Conagra’s transformation into a pure-play branded food company.

Nevertheless, investors can count on MEDIFAST INC (MED - Free Report) , a Zacks Rank #1 (Strong Buy) stock, which has delivered positive earnings surprises in the past three quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>




In-Depth Zacks Research for the Tickers Above


Normally $25 each - click below to receive one report FREE:


Conagra Brands Inc. (CAG) - free report >>

MEDIFAST INC (MED) - free report >>

Lamb Weston Holdings Inc. (LW) - free report >>

More from Zacks Analyst Blog

You May Like