ConAgra Foods Inc. Annual Valuation – 2014 $CAG

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 the 5 Undervalued Companies for the Defensive 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 July 2014, the Company acquired TaiMei Potato Industry Limited, a potato processor in Shangdu, Inner Mongolia.
CAG Chart

CAG data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  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 – FAIL
  6. Moderate PEmg ratio – PEmg is less than 20 - FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

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 - PASS
  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 - FAIL

Valuation Summary

Key Data:

Recent Price $31.97
MG Value $8.69
MG Opinion Overvalued
Value Based on 3% Growth $19.07
Value Based on 0% Growth $11.18
Market Implied Growth Rate 7.90%
NCAV -$23.41
PEmg 24.31
Current Ratio 1.60
PB Ratio 2.57

Balance Sheet – 5/31/2014

Current Assets $4,230,800,000
Current Liabilities $2,642,400,000
Total Debt $8,767,600,000
Total Assets $19,366,400,000
Intangible Assets $11,042,300,000
Total Liabilities $14,107,900,000
Outstanding Shares 421,920,000

Earnings Per Share

2014 $0.70
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 $1.32
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 does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns about the low current ratio, the insufficient earnings growth over the last ten years, and the high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the net current assets and the lack of earnings growth over the last five years.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  From a valuation side of things, the company appears overvalued after seeing its EPSmg (normalized earnings) drop from $1.40 in 2010 to only $1.32 for 2014.  This demonstrated drop in earnings does not support the market’s implied estimate of 7.9% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value below the price.

Be sure to check out the previous ModernGraham valuations of ConAgra Foods (CAG) for more perspective!

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 (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.

Disclaimer:  The author did not hold a position in ConAgra Foods (CAG) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.






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