ConAgra Foods, Inc. (NYSE: CAG) is trading well above its its historical price to earnings range, trading at 21 times, versus its historical range of 8 times to 16 times. This is on the back of a recent run up in the stock thanks to revised guidance. ConAgra upped its fiscal 2013 earnings guidance to $2.15 per share, above the previously guided $2.06. Its recent Ralcorp acquisition is expected to contribute $0.05 to that 2012 EPS number, and then contribute $0.25 to 2014. ConAgra appears to be on track for solid performance over the interim, but the big drawback for ConAgra is that the company solely operates in North America.
Dividend Strength
Although it has been said that Kraft Foods Group — the North American grocery business — will be the stable dividend payer, and Mondelez will be the fast growing snacks business with access to emerging markets, I believe that Mondelez presents investors with both an income and a growth opportunity.
Mondelez currently pays an annualized $0.52 dividend, which is only a 28% payout of earnings. The peer average payout ratio is closer to 60%. Thus, although Mondelez has the status of being a “growth” company, I still believe it has room to up its dividend. To give you an idea of just how flexible Mondelez is, if the food company did pay out 60% of earnings, the stock would have a 3.9% dividend yield, whereas the peer average yield is only 2.9%.
The strength in Mondelez’s dividend lies in its industry-leading balance sheet. The company has a superior debt ratio and long-term debt to equity position:
Debt ratio
Mondelez 26%
General Mills 36%
Kellogg 52%
Campbell 52%
ConAgra 29%
General Mills 36%
Kellogg 52%
Campbell 52%
ConAgra 29%
Long-term debt to equity
Mondelez 66%
General Mills 87%
Kellogg 247%
Campbell 223%
ConAgra 65%
General Mills 87%
Kellogg 247%
Campbell 223%
ConAgra 65%
What’s more is that Mondelez is expected to be one of the top growth stories over the interim. The five year expected EPS growth rate according to Wall Street analysts stacks up as follows:
5-year expected EPS growth rate
Mondelez 13%
General Mills 8%
Kellogg 7%
Campbell 6%
ConAgra 11%
General Mills 8%
Kellogg 7%
Campbell 6%
ConAgra 11%
Mondelez offers investors growth opportunities and income; this includes the best five-year expected earnings growth rate, and a dividend with room to grow. A number of billionaire hedge funds are also large stakeholders in Mondelez, including the likes of Steve Cohen of SAC Capital, Jim Simons of RenTech and Warren Buffett (see all hedge fund owners here).
The article The Best Food Company, Not Who You Think originally appeared on Fool.com and is written by Marshall Hargrave.
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