Conagra (NYSE: CAG) is a leading consumer packaged goods (CPG) holding company with a massive footprint in segments like grocery, snacks, frozen foods, international, and food service via its popular subsidiaries, including Duncan Hines, Slim Jim, Gardein, Birds Eye, Marie Callender, and Healthy Choice. CAG recorded almost $12 billion in 2023 sales, led by a $5.1 billion contribution from the refrigerated and frozen segment, followed by grocery/snacks at $4.9 billion and the remaining from international and food service businesses. CAG CEO Sean Connolly-led management has reiterated multiple times this year about their focus on debt reduction rather than acquisitions, given that efficient capital allocation typically offers better returns in CPG. The industry has remained muted amid concerns around growing GLP-1 weight-loss drug users influencing consumer behaviour, the lapping of price hikes from 2022-23, falling volume, higher rates, and the lack of a growth story. However, CPG businesses are economically defensive, with the stocks carrying the potential to surprise during market upheavals. Here, we summarized an end-of-March bullish thesis published by WinBrun on Value Investors Club.
A worker assembling a meal in a food production facility.
The thesis describes CAG’s cheap valuations, nearly 4.5% dividend, low-cost $7.4 billion long-term debt, and portfolio diversity to service growing GLP-1 users as catalysts driving company growth. Furthermore, strategic capital allocation towards debt reduction and the ownership structure with provision for acquisition would support CAG in outperforming its peers. The company was trading below its historical valuations and the overall CPG market during March-end at 9.7x E2025 EV/EBITDA and 11x E2025 P/E. The thesis projected 10%-12% in annualized returns over the next three years, considering an earnings growth of up to 3% complemented by the company’s cheap valuation and business defensibility.
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CAG’s data showed that “better-for-you” frozen meal consumption jumps 8% in people using weight-loss drugs. Hence, high-protein snacks from Slim Jim or low-calorie, fiber-rich options from Orville could work with GLP-1 users. Elsewhere, CAG’s frozen brands, Birds Eyes and Marie Callender, are also poised to showcase strong performance in the single-serve frozen meals and frozen vegetables segments, which account for 40% of total sales. The CPG leader retains a strong footprint in shelf space, which is scarce. The thesis urges to view the market beyond GLP-1s and healthy eating, arguing that a vast market remains for shelf-stable, popular household foods brands catering to diverse palettes and household requirements, where CAG again stands out. The company’s P/E multiple of 11.4x on an EPS basis remains below its five-year forward average. The long-standing durability of CAG’s economics supported by diversified category exposure makes the stock worthy of a higher multiple.
CAG is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 31 hedge fund portfolios held CAG at the end of the second quarter, which was 23 in the previous quarter. While we acknowledge the potential of CAG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as CAG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: This article was originally published at Insider Monkey.
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