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ConAgra Foods, Inc. (CAG), McCormick & Company, Incorporated (MKC), General Mills, Inc. (GIS): Which Stock Is a Buy in the Packaged-Foods Industry?

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Food-packaging companies recently reported their earnings. The companies had hardly anything to surprise investors. However, sectors always come with investing themes and post-earnings release is a good time to find/discover them.

What was the common investing theme in the food-packaging industry? Let’s have a look at some of the players.

Investment thesis

ConAgra Foods, Inc. (NYSE:CAG)

Despite a +6% move since its earnings release on June 27, ConAgra Foods, Inc. (NYSE:CAG) is only trading at 14.6x the company’s guidance for 2014. Thus, it remains the cheapest stock in the packaged-food universe. There are two potential drivers to long-term out-performance in the stock. First, the guidance of $2.40 for the year seems to be conservative and will likely be exceeded. Secondly, the Street is largely skeptical of ConAgra Foods, Inc. (NYSE:CAG)’s ability to grow EPS 10%+ a year between FY 2015 estimates and FY 2017 estimates.

However, there is not much reason to believe so, particularly for 2015 when many Ralcorp synergies kick in and Ralcorp fundamentals are likely to turn around (especially on easy comps). For those who haven’t been following ConAgra or in fact have heard this name the first time, ConAgra Foods, Inc. (NYSE:CAG) acquired Ralcorp in January. At the time of acquisition, Ralcorp was one of the leading suppliers of private-brand packaged foods in North America. Adding Ralcorp has helped ConAgra to balance its portfolio and enhance its share in the packaged-food market.

Is McCormick & Company, Incorporated (NYSE:MKC) an average stock?

Most of the analysts are neutral on McCormick & Company, Incorporated (NYSE:MKC). The company reported non-GAAP EPS of $0.61. However, this should be $0.59, rather than $0.61, as the costs of the WAPC acquisition should be included. This aligns the numbers with how management will report them, especially regarding the full fiscal year (for which management expects to report within a range of $3.13 to$3.19). The estimate for 2013 goes to $3.15 from $3.18 and relies heavily on a strong fourth quarter for 2013.

Although McCormick & Company, Incorporated (NYSE:MKCcontinues to perform well with the North American consumer, a slower start to the grilling season could shave some revenue from 3Q 2013. The current Price/Earnings multiple of 21x is more than appropriate for a company that, though fundamentally strong, is growing EBITDA annually in the mid single-digit range. Most people now expect McCormick & Company, Incorporated (NYSE:MKC) shares to perform roughly inline with the group for the rest of the year.

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