Conagra Brands Inc Valuation – February 2019 $CAG

Company Profile (excerpt from Reuters): Conagra Brands, Inc., formerly ConAgra Foods, Inc., incorporated on December 5, 1975, 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. Its 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.


Downloadable PDF version of this valuation:

ModernGraham Valuation of CAG – February 2019

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 $11,354,309,552 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.47 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 8.44% Fail
6. Moderate PEmg Ratio PEmg < 20 21.37 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.35 Pass
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 1.47 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 11.09 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 Pass


Stage 2: Determination of Intrinsic Value

EPSmg $1.09
MG Growth Estimate 10.99%
MG Value $33.35
Opinion Undervalued
MG Grade C
MG Value based on 3% Growth $15.86
MG Value based on 0% Growth $9.30
Market Implied Growth Rate 6.44%
Current Price $23.38
% of Intrinsic Value 70.10%

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 ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability 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 Undervalued after growing its EPSmg (normalized earnings) from $0.63 in 2015 to an estimated $1.09 for 2019. This level of demonstrated earnings growth outpaces the market’s implied estimate of 6.44% 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 above the price.

At the time of valuation, further research into Conagra Brands Inc revealed the company was trading above its Graham Number of $18.23. The company pays a dividend of $0.85 per share, for a yield of 3.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 21.37, which was below the industry average of 26.71, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-29.46.

Conagra Brands Inc receives an average overall rating in the ModernGraham grading system, scoring a C.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$29.46
Graham Number $18.23
PEmg 21.37
Current Ratio 1.47
PB Ratio 1.35
Current Dividend $0.85
Dividend Yield 3.64%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 11/1/2018
Total Current Assets $3,275,400,000
Total Current Liabilities $2,234,500,000
Long-Term Debt $11,545,400,000
Total Assets $23,006,800,000
Intangible Assets $16,299,400,000
Total Liabilities $15,703,500,000
Shares Outstanding (Diluted Average) 421,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.57
May2018 $1.98
May2017 $1.46
May2016 -$1.57
May2015 -$0.60
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.09
May2018 $0.70
May2017 $0.16
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

Recommended Reading:

Other ModernGraham posts about the company

Conagra Brands Inc Valuation – May 2018 $CAG
Conagra Brands Inc Valuation – December 2016 $CAG
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

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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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