Conagra Brands Inc Valuation – December 2016 $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 10 Stocks for Using A Benjamin Graham Value Investing Strategy – December 2016.  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 Brands Inc (CAG) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Conagra Brands, Inc., formerly ConAgra Foods, Inc., operates as a packaged food company. The Company operates through two segments: Consumer Foods and Commercial Foods. The Company sells branded and customized food products, as well as commercially branded foods. It also supplies vegetable, spice and grain products to a range of restaurants, foodservice operators and commercial customers. Conagra Foodservice offers products to restaurants, retailers, commercial customers and other foodservice suppliers. The Company also operates in the countries outside the United States, such as Canada and Mexico. The Company’s brands include Marie Callender’s, Healthy Choice, Slim Jim, Hebrew National, Orville Redenbacher’s, Peter Pan, Reddi-wip, PAM, Snack Pack, Banquet, Chef Boyardee, Egg Beaters, Rosarita, Fleischmann’s and Hunt’s. The Company sells its products in grocery, convenience, mass merchandise and club stores.

CAG Chart

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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. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, 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 – December 2016

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 $17,339,814,675 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.92 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 -111.64% Fail
6. Moderate PEmg Ratio PEmg < 20 222.60 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.87 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 1.92 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.01 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 $0.18
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $2.60
MG Value based on 0% Growth $1.52
Market Implied Growth Rate 107.05%
Current Price $39.92
% of Intrinsic Value N/A

Conagra Brands Inc does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.65 in 2013 to an estimated $0.18 for 2017. This level of demonstrated earnings growth does not support the market’s implied estimate of 107.05% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Conagra Brands Inc revealed the company was trading above its Graham Number of $18.68. The company pays a dividend of $1 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 222.6, which was above the industry average of 24.74. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.98.

Conagra Brands Inc scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$7.98
Graham Number $18.68
PEmg 222.60
Current Ratio 1.92
PB Ratio 3.87
Current Dividend $1.00
Dividend Yield 2.51%
Number of Consecutive Years of Dividend Growth 0


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Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2016
Total Current Assets $3,345,000,000
Total Current Liabilities $1,745,400,000
Long-Term Debt $3,214,300,000
Total Assets $11,425,000,000
Intangible Assets $5,509,600,000
Total Liabilities $6,867,700,000
Shares Outstanding (Diluted Average) 441,300,000

Earnings Per Share History

Next Fiscal Year Estimate $1.49
May2016 -$1.56
May2015 -$0.59
May2014 $0.70
May2013 $1.85
May2012 $1.12
May2011 $1.88
May2010 $1.62
May2009 $2.15
May2008 $1.90
May2007 $1.51
May2006 $1.03
May2005 $1.23
May2004 $1.53
May2003 $1.44
May2002 $1.47
May2001 $1.25
May2000 $0.80
May1999 $0.65
May1998 $1.32
May1997 $1.34

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.18
May2016 -$0.22
May2015 $0.63
May2014 $1.31
May2013 $1.65
May2012 $1.61
May2011 $1.84
May2010 $1.76
May2009 $1.74
May2008 $1.51
May2007 $1.32
May2006 $1.27
May2005 $1.39
May2004 $1.41
May2003 $1.27
May2002 $1.16
May2001 $1.03

Recommended Reading:

Other ModernGraham posts about the company

ConAgra Foods Inc. Analysis – August 2015 Update $CAG
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

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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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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