Conagra Brands High-Yield and Deep Value Are a Buy in October

Key Points

• Conagra Brands' turnaround gains traction, and its stock appears to be bottoming out.
• The analysts and institutional trends are optimistic, suggesting a buying opportunity for income investors.
• The yield and value present a generational opportunity that can produce double-digit total returns for years to come.

Conagra NYSE: CAG is looking like a buy in October because the FQ1 results confirm that its turnaround efforts are succeeding, it is on track to resume growth, expand its margin, and maintain its capital return. In terms of value and yield, they are currently at historic lows and highs, presenting a once-in-a-generation chance for risk-averse and income-focused investors. 

Trading at only 10.5x its FY2026 earnings outlook and yielding nearly 7.5%, this stock price is poised to more than double over the next five to ten years, while continuing to pay its dividend. The takeaway for investors is that Conagra stock is poised to deliver a high double-digit annual total return over the coming decade, including a steady and reliable dividend, which presents an attractive opportunity that will outperform bonds by a wide margin.

Conagra Outperforms Expectations Despite Macroeconomic Headwinds

Conagra struggled with headwinds in FQ1 but was able to outperform its consensus expectation with revenue of $2.63 billion. This represents a 5.7% decline compared to the same period last year; however, the decrease is primarily due to divestitures and portfolio reshaping aimed at improving the organic growth rate and margin over time. Organically, revenue declined by less than 1% as volume shrinkage offset an increase in price and mix. Segmentally, all were weak, led by a 3.5% contraction in the International market, but market share was gained, setting them up for leveraged rebounds once growth is resumed.  

The margin news is another mixed bag with gross and operating margin contraction. However, as with the revenue, the contraction was less severe than anticipated, leaving the company in a stronger position than initially expected. The adjusted earnings contracted by 26% but are approximately 1900 basis points above MarketBeat’s consensus, including the impacts of increased inventory and prepaid expenses. Looking forward, the strength is expected to be sustained. Management restated its guidance, forecasting adjusted EPS with a range above the consensus forecast, sufficient to cover the dividend. 

The only bad news is that Conagra increased its debt. However, the debt increase supported the inventory gains, investment in growth initiatives, and reduction in net leverage, helping to sustain a low leverage ratio. As it stands, the company’s long-term debt is less than 1x its equity, leaving it in a healthy position capable of sustaining capital returns until revenue growth and margin improvements are logged. 

The main risk for investors is the speed of buybacks. The company has already limited distribution increases and is reducing the pace of buybacks, which lessens its support. However, as growth is expected to pick up and margins expand, buybacks are likely to rise again, and distribution increases will restart. 

Sell-Side Support Reveals Optimism Among Analysts and Institutions

The sell-side trends, including those of analysts and institutions, reveal solid support and an optimistic, albeit diminished, outlook for the stock price.

While price target reductions are the trend in 2025, the bulk of the reductions align with the early-October consensus for a 15% increase in stock prices. This optimism is echoed in the institutional data, which reveals the group owns nearly 85% of the stock and has been buying at a pace of greater than $2.50 to $1 sold all year. 

The post-release price action aligns with a bottoming market, positioning it to advance in October. The 3% price increase confirms a bottom at $18.20 and a bullish swing in MACD, with increased volume to strengthen the signal.

The likely outcome is that CAG stock will rise in October, advancing to the $20 to $21.50 region, as its market consolidates and prepares to complete its reversal. That may not occur until later in the year or in early 2026, but it appears likely, given the business outlook, capital return, and optimistic sell-side trends.