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ConAgra Foods, Inc. (CAG): This Food Stock Still Looks Delicious

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ConAgra Foods, Inc.ConAgra Foods, Inc. (NYSE:CAG) likes to say that it makes the food we all love. Well, fourth-quarter earnings blew away expectations, so that statement is looking to be correct. Its brands are thought to be in 97% of all American households. The company’s portfolio of brands consists of Hunt’s, Healthy Choice, Orville Redenbacher’s, Peter Pan, Bertolli, Blue Bonnet, Slim Jim, and Chef Boyardee among others.

The original acquirer

ConAgra Foods, Inc. (NYSE:CAG) was one of the first food companies to grow via acquisition. Starting with the 1980 purchase of Banquet Foods, the company has gone on to assemble its food brands by buying brands from other food companies. Many consumer product firms went through leveraged buyouts and non-core assets were sold off. ConAgra was able to benefit by buying assets other firms didn’t want. ConAgra Foods, Inc. (NYSE:CAG) continued its acquisition spree that just recently included the purchase of Ralcorp for $5 billion.

In the latest quarter, earnings grew 18% to $0.60 per share. Sales increased 34% to $4.6 billion, driven by the acquisition of Ralcorp. For the full year, earnings per share increased 18% to $2.16 per share.

The company raised its long-term forecast. ConAgra Foods, Inc. (NYSE:CAG) sees annual growth of 7% to 9% for earnings and 3% to 4% for sales. That is up from its prior growth targets of 6% to 8% for earnings and 3% for sales.In terms of the Ralcorp acquisition, the company raised its expectedcost savingsfrom $225 million to $300 million.By 2017, the company expects earnings per share to be $3.00 compared to $2.16 last year.

For investors, the stock is attractive and trades with a forward P/E of 12. The company pays an annual dividend of $1.00 per share for a yield of 2.90%. The dividend payout is 54%.

Growth over the next several quarters is likely to come from increased advertising spending and new products. Among the new products is Marie Callender’s Easy Sides, a shelf-stable pasta side sold in microwaveable pouches. A short-term hit to earnings will come from the loss of a major customer in its Lamb Weston potato business. This will likely cut this year’s earnings by $0.06-$0.07. Even though this is a negative item for the company, I think it has enough going for it with new products and synergies from the Ralcorp acquisition to make up for this loss.

The competition

The food products sector is extremely competitive and two of ConAgra Foods, Inc. (NYSE:CAG)’s biggest competitors are Kraft Foods Group Inc (NASDAQ:KRFT) and Nestle (NASDAQOTH:NSRGY). Both have very strong food brands and are aggressive in advertising and developing new products.

Kraft Foods is in practically every corner of the North American grocery store. Its products include Kraft Foods Group Inc (NASDAQ:KRFT), Crystal Light, Jell-O, Kool-Aid, Miracle Whip, Oscar Mayer, Planters, Maxwell House, and many other brands.

Even though Kraft is considered to be focused on the slower growth North American grocery business, the company is a very well-run one. The company has been focusing on stronger productivity gains and cost savings in its operations. The improvements showed in the company’s first-quarter results where revenue grew 2.1% and operating income increased 9.2%.

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