ConAgra Foods Inc. Analysis – August 2015 Update $CAG

Benjamin 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 Most Undervalued Companies for the Defensive Investor – July 2015.  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 stock analysis showing a specific look at how ConAgra Foods Inc. (CAG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): ConAgra Foods, Inc. (ConAgra Foods) is the packaged food company. The Company provides branded and private branded food in households, as well as commercial foods business serving restaurants and foodservice operations. The Company’s brands include Banquet, Chef Boyardee, Egg Beaters, Healthy Choice, Hebrew National, Hunt’s, Marie Callender’s, Orville Redenbacher’s, PAM, Peter Pan, Reddi-wip, Slim Jim and Snack Pack, among others. The CongAra Foods are sold in grocery, convenience, mass merchandise, club, and drug stores. Additionally, the Company makes frozen potato and sweet potato items, as well as other vegetable, spice, bakery goods, and grain products for its commercial and foodservice customers. The Company operates in three segments: Consumer Foods, Commercial Foods and Private Brands.


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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.


Downloadable PDF version of this valuation:

ModernGraham Valuation of CAG

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Fail
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

EPSmg 1.02
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Value based on 3% Growth $14.76
MG Value based on 0% Growth $8.65
Market Implied Growth Rate 17.97%
Current Price $45.25
% of Intrinsic Value N/A

ConAgra Foods Inc. is not suitable for the more conservative Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned with the low current ratio, the insufficient earnings stability or growth over the last ten years, and high PEmg and PB ratios.  The Enterprising Investor is concerned by the level of debt relative to the current assets along with the lack of earnings stability or growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.61 in 2012 to an estimated $1.02 for 2016.  This level of demonstrated earnings growth does not support the market’s implied estimate of 17.97% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below 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.

Stage 3: Information for Further Research

CAG Charts - August 2015

Net Current Asset Value (NCAV) -$21.85
PEmg 44.45
Current Ratio 1.11
PB Ratio 4.28
Dividend Yield 2.21%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Total Current Assets $3,667,700,000
Total Current Liabilities $3,310,200,000
Long-Term Debt $6,888,900,000
Total Assets $17,542,200,000
Intangible Assets $9,330,300,000
Total Liabilities $13,016,200,000
Outstanding Shares 427,900,000

Earnings Per Share History

Next Fiscal Year Estimate $2.15
May15 -$0.60
May14 $0.70
May13 $1.85
May12 $1.12
May11 $1.88
May10 $1.62
May09 $2.15
May08 $1.90
May07 $1.51
May06 $1.03
May05 $1.23
May04 $1.53
May03 $1.44
May02 $1.47
May01 $1.25
May00 $0.80
May99 $0.65
May98 $1.32
May97 $1.34
May96 $0.39

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.02
May15 $0.63
May14 $1.31
May13 $1.65
May12 $1.61
May11 $1.84
May10 $1.76
May09 $1.74
May08 $1.51
May07 $1.32
May06 $1.27
May05 $1.39
May04 $1.41
May03 $1.27
May02 $1.16
May01 $1.03
May00 $0.91

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – November 2014
20 Companies in the Spotlight This Week – 8/16/14
ConAgra Foods Inc. Annual Valuation – 2014 $CAG
18 Companies in the Spotlight This Week – 5/17/14
ConAgra Foods (CAG) Quarterly Valuation – May 2014

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  This is not investment advice and all readers should speak with a registered investment adviser prior to making any investment decision.  ModernGraham is not affiliated with the company in any manner.







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