ConAgra Foods (CAG) Quarterly Valuation – May 2014

200px-ConAgra_Foods_logo_2009.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 Undervalued Companies for the Enterprising Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how ConAgra Foods (CAG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): ConAgra Foods, Inc. is a packaged food company. The Company operates in four segments: Consumer Foods, Commercial Foods, Ralcorp Food Group, and Ralcorp Frozen Bakery Products. Consumers can find recognized brands such as Banquet, Chef Boyarde, Egg Beaters, Healthy Choice, Hebrew National, Hunt’s, Marie Callender’s, Odom’s Tennessee Pride, Orville Redenbacher’s, PAM, Peter Pan, Reddi-wip, Slim Jim, Snack Pack, and many other ConAgra Foods brands and products, along with food sold by ConAgra Foods under private brands, in grocery, convenience, mass merchandise, club stores, and drugstores. In January 2013, it acquired Ralcorp. Ralcorp manufactures private brand products. In September 2013, Brynwood Partners VI L.P. announced that its portfolio company, Lightlife Foods, Inc., had acquired Lightlife, one of ConAgra Foods’ brands with product lines that include vegetarian-based burgers, hotdogs and other meatless frozen and refrigerated items.

CAG Chart

CAG data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – PASS
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary

Key Data:

Recent Price $31.47
MG Value $31.57
MG Opinion Fairly Valued
Value Based on 3% Growth $26.37
Value Based on 0% Growth $15.46
Market Implied Growth Rate 4.40%
NCAV -$24.42
PEmg 17.30
Current Ratio 1.40
PB Ratio 2.36

Balance Sheet – 2/23/2014

Current Assets $4,520,600,000
Current Liabilities $3,240,500,000
Total Debt $8,760,700,000
Total Assets $20,433,300,000
Intangible Assets $11,735,400,000
Total Liabilities $14,806,700,000
Outstanding Shares 421,150,000

Earnings Per Share

2014 (estimate) $2.21
2013 $1.85
2012 $1.12
2011 $1.90
2010 $1.67
2009 $1.42
2008 $1.06
2007 $1.35
2006 $1.15
2005 $1.27
2004 $1.50

Earnings Per Share – ModernGraham

2014 (estimate) $1.82
2013 $1.61
2012 $1.47
2011 $1.59
2010 $1.40
2009 $1.26

Dividend History

CAG Dividend Chart

CAG Dividend data by YCharts


ConAgra Foods is suitable for both Defensive Investors and Enterprising Investors.  The company passes all of the Defensive Investor’s requirements except the current ratio, and even though the Enterprising Investor is concerned with the high level of debt relative to current assets, the company qualifies for both investor types because it is suitable for Defensive Investors.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company and its competitors.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.40 in 2010 to an estimated $1.82 in 2014.  This level of demonstrated growth, while rather low, is supportive of the market’s implied estimate of 4.4% earnings growth and leads the ModernGraham to calculate an estimate of intrinsic value that falls within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on ConAgra Foods Inc. (CAG)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in ConAgra Foods Inc. (CAG) or in any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.






2 responses to “ConAgra Foods (CAG) Quarterly Valuation – May 2014”

  1. Max Phillips Avatar
    Max Phillips

    Your PE ration for Con Agra foods is incorrect. As of July 29, 2014, it’s 44.42, which is much higher than Graham would tolerate.

    1. Benjamin Clark Avatar


      There are two things causing the difference in PEmg from the Current P/E as you’ve seen elsewhere. First, the PEmg figure is the Price over Earnings Per Share – ModernGraham (EPSmg). EPSmg is a weighted-average of the last five years worth of earnings. As a result, EPSmg may be higher or lower than the earnings figure used to determine a standard PE ratio. Second, this analysis was done in May, before the final 2014 figures came out. It turns out that the final figures are much lower for 2014 than had been estimated, so the EPSmg today is probably a little bit lower; however, the PEmg is likely still quite a bit lower than the 44.42 you’ve mentioned.

      CAG is due for an updated quarterly valuation in a couple of weeks, so stay tuned!


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