An Undervalued ConAgra Could Be a Good Investment

ConAgra has struggled of late, but the company’s turnaround strategies make it a good buy at current levels.

Apr 15, 2014 at 5:08PM

ConAgra Foods (NYSE:CAG) gained some momentum in the last month after the company released its third-quarter results. The company beat analysts' estimates that were already quite low. ConAgra already slashed its fiscal 2014 profit forecast twice earlier this year, and investors were happy the company didn't go down that route once again.

ConAgra was finally able to reaffirm its full-year forecast, but the company is in trouble; sales of private-label products and in-house brands are losing steam.Will ConAgra be able to turn its business around? More importantly, is it a good buy when compared to other processed- and packaged-foods players such as General Mills (NYSE:GIS) and TreeHouse Foods (NYSE:THS)? Let's find out.

Trying to get better
ConAgra faces problems in its consumer-foods segment. Volumes were down 3% in the third quarter from last year due to the weak performance of its Orville Redenbacher's, Healthy Choice, and Chef Boyardee brands. However, despite these hardships, ConAgra's effective cost-management strategy enabled it to post some decent numbers in the third quarter.

Going forward, ConAgra will support its brands through aggressive advertising and the four Ps of marketing -- pricing, packaging, placement, and promotion.

Consequently, it is working on the turnaround of Healthy Choice, Chef Boyardee, and Orville Redenbacher's. ConAgra has a specific plan of action to stabilize and improve performance involving product and packaging changes, targeting relevant consumers, and in-store initiatives. In addition ConAgra has lined up some new launches, such as PAM Cooking Spray with coconut oil and Bertolli for the current fiscal year.

ConAgra is also focusing on pot pies, where it has a strong presence and a robust supply chain. This has already helped the company drive growth in the Marie Callender's and Banquet businesses. ConAgra is looking to capitalize on this demand with the help of the Bertolli brand by using its pot pie capabilities to make Italian style tortas. 

In addition, ConAgra's revenue from its milling business also declined due to lower wheat costs that were passed on to customers. However, the bottom line in this segment improved on the basis of a better product mix and production efficiencies.

ConAgra plans to enter into a joint venture for its flour-milling business with Cargill and CHS. Under this agreement, the companies will combine businesses to form a new company called Ardent Mills, which has the potential to control a third of U.S. flour mill capacity. 

More attractive than peers
ConAgra is still working to improve the fundamentals of its business. According to management, the company is receiving positive feedback about the strategies that it is implementing.

Moreover, ConAgra is far cheaper than peers General Mills and TreeHouse Foods. ConAgra trades at a trailing P/E ratio of 16, which comes down to 13 on a forward P/E basis. This indicates that the company's earnings are expected to grow in the future.

On the other hand, General Mills is more expensive at 19 times trailing earnings. On a forward P/E basis as well, General Mills is expensive compared to ConAgra with a P/E ratio of 17. TreeHouse is the most expensive of the lot with a P/E ratio of 30. On a forward P/E basis as well, TreeHouse is expensive with a multiple of 18.

Moreover, of all three companies, ConAgra is the highest dividend payer with a yield of 3.3%. General Mills is next with a yield of 3.2%, while TreeHouse doesn't pay a dividend.

Bottom line
ConAgra is undervalued when compared to peers, and the company is taking a number of steps to improve its business. The introduction of new products and aggressive marketing should help it to get back on track, making ConAgra a good buy at current levels.

6 stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Mukesh Baghel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information