Free Trial

Conagra Brands: Another Reason To Go Long Consumer Staples In 2023

Conagra Brands: Another Reason To Go Long Consumer Staples In 2023

Key Points

  • Conagra Brands proved why consumer staples should still be on your radar. 
  • The company offers a value to its peers and a high yield. 
  • The stock is breaking out and on track for a new all-time high. 
  • 5 stocks we like better than Conagra Brands

The Consumer Staples NYSEARCA: XLY sector has been a go-to sector for the last several years and Conagra Brands NYSE: CAG has just proven why it and they should still be on investor’s radars. The company is proving to be resilient in the face of rising costs and uncertain economic conditions. It is offering not only a value relative to its peers but a higher-than-average dividend that qualifies as “high yield” relative to the S&P 500 NYSEARCA: SPY.

The takeaway here is that Conagra Brands just beat estimates on the top and bottom lines, showed tremendous pricing power and issued favorable guidance that has the market on the move and ready to tackle another new all-time high. 

Conagra Brands Guidance Has Shares At New Highs 

The Q2 results and guidance have price action in Conagra brands up more than 2.0% in premarket trading and at a new high. This is an almost 6-year high that dates back to well before the pandemic began, so is a very noteworthy move. The strength is driven by an 8.2% increase in revenue that outpaced the consensus by 100 basis points and was coupled with an increase in margins.

Revenue strength was driven by gains in all segments, led by a 14% increase in the retail snacks business, which is good news for Pepsico NASDAQ: PEP when it reports. On an organic basis, sales are up 8.6% and offset by a 0.3% FX-related headwind. 

The best news is in the margin. The company increased its adjusted gross and operating margins to levels above the consensus estimates. The AGM expanded by 310 and the AOP by 237 to drive a 26.6% increase in the adjusted earnings. Adjusted earnings of $0.86 are up 26.6% YOY, and this strength is expected to continue into the 2nd half of the fiscal year. 

The guidance is moving this market as it includes increasing all metrics. The company is now expecting revenue growth from 7% to 8%, with an operating margin of 15.3% to 15.6%. This should drive adjusted EPS of $2.60 to $2.70, more than $0.10 above the consensus estimate at the low end of the range. Assuming the company’s momentum continues, this guidance may also be too low. 

Conagra Brands Is A High-Yield Value Stock 

Conagra Brands is offering value in the Consumer Staples trading at only 15X its earnings. This compares to the highest-valued stocks like Hormel NYSE: HRL, The Clorox Company NYSE: CLX and Lamb Weston NYSE: LW, which trade in a range of 25X to 35X. At the same time, the stock is yielding about 3.4%, which is among the highest yields in the group, and it is relatively safe.

The company’s leverage ratio is a low 0.8X, and it has a 4.2X coverage ratio, so there is cash flow on the books to cover the payment and extend the 3-year history of dividend increases to 4 and 5 years at the least.  Kraft Heinz NASDAQ: KHC is the only stock in the group with a higher yield and comparable value and it, too, is well-exposed to the retail snacks business. 

The analysts have yet to come out with commentary but rest assured it is on the way. The trend in sentiment is bullish so investors might expect to see the sentiment continue to firm and the consensus price target rise. As it is, the analysts have the stock set at a Firm Hold/Weak Buy with a price target now below the stock's trading level (but trending higher). 

The Technical Outlook: Conagra Brands Breaks Out 

Conagra Brands is in the midst of a breakout that is best viewed with monthly data. The 3.3% price gain has it trading near $40 and at the highest since mid-2017. Assuming the market follows through on the signals and the news, this stock should at least retest the all-time highs if not break out to a new one. 

Conagra Brands: Another Reason To Go Long Staples In 2023

Should you invest $1,000 in Conagra Brands right now?

Before you consider Conagra Brands, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Conagra Brands wasn't on the list.

While Conagra Brands currently has a "Hold" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

20 High-Yield Dividend Stocks that Could Ruin Your Retirement Cover

Almost everyone loves strong dividend-paying stocks, but high yields can signal danger. Discover 20 high-yield dividend stocks paying an unsustainably large percentage of their earnings. Enter your email to get this report and avoid a high-yield dividend trap.

Get This Free Report
Thomas Hughes
About The Author

Thomas Hughes

Contributing Author

Technical and Fundamental Analysis

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Kraft Heinz (KHC)
4.823 of 5 stars
4.82 / 5 stars
$33.90+3.2%4.72%14.80Moderate Buy$39.42
PepsiCo (PEP)
4.443 of 5 stars
4.44 / 5 stars
$169.89+3.1%3.19%24.66Moderate Buy$185.27
Hormel Foods (HRL)
3.3076 of 5 stars
3.31 / 5 stars
Clorox (CLX)
3.7252 of 5 stars
3.73 / 5 stars
Lamb Weston (LW)
4.8362 of 5 stars
4.84 / 5 stars
Conagra Brands (CAG)
3.8597 of 5 stars
3.86 / 5 stars
Staples (SPLS)
0 of 5 stars
0.00 / 5 stars
Compare These Stocks  Add These Stocks to My Watchlist 

Featured Articles and Offers

CPI News Breakdown: Key Market Moves to Follow

CPI News Breakdown: Key Market Moves to Follow

Join us as we break down the latest CPI news, its effect on your favorite stocks, and the broader market. We also discuss how these economic indicators might lead to a potential interest rate cut by t

Related Videos

Inside Pelosi’s Latest Stock Moves
4 Best Tech Stocks to Own in 2024
NVIDIA Tops Microsoft and Apple for Most Valuable Company

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines