Conagra Brands Emerges as a Leader in Consumer Staples in 2023

Consumer Staples has been a go-to sector for several years, and ConAgra Brands (NYSE: CAG) has just demonstrated they should remain on investors’ radars. In the face of increased costs and unpredictable economic conditions, the company is proving to be robust. It provides a good value in comparison to its peers and a higher-than-average dividend yield compared to the S&P 500.

The conclusion here is that Conagra Brands just beat top and bottom-line projections, demonstrated incredible pricing power, and offered favorable guidance, which has the market on the move and ready to challenge another new all-time high.ca

Conagra Brands Guidance Shows New Highs in Shares

Price action in Conagra Brands is up more than 2.0% in premarket trading and at a new high following the Q2 results and guidance. This is a nearly 6-year high that dates back far before the epidemic began, so it is a significant change. The gain in sales was 8.2% more than expected, outpacing the consensus by 100 basis points, and was accompanied by an increase in margins.

Gains in all categories drove revenue growth, topped by a 14% increase in the retail snacking division, which bodes well for PepsiCo (NASDAQ: PEP) when it reports. Organic sales are up 8.6%, offset by a 0.3% foreign exchange headwind.

The most exciting news is in the margin. The company raised its adjusted gross and operating margins above Marketbeat.com consensus projections. The AGM increased by 310 and the AOP by 237, resulting in a 26.6% increase in adjusted earnings. Adjusted earnings of $0.86 are up 26.6% year on year, and this growth is likely to continue into the fiscal year’s second half.

This market is being moved by the guidance, which involves raising all measures. A revenue increase of 7% to 8% for Conagra Brands is now expected, with an operating margin of 15.3% to 15.6%. This should result in adjusted earnings per share of $2.60 to $2.70, which is more than $0.10 more than the consensus expectation at the low end of the range. If the company’s performance continues, this guidance may be too low as well.

A High-Yielding Dividend Stock

Conagra Brands provides value in the Consumer Staples sector, trading at only 15 times earnings. This contrasts with the highest-valued stocks, such as Hormel (NYSE: HRL), Clorox Co (NYSE: CLX), and Lamb Weston (NYSE: LW), which trade in the 25X to 35X range. At the same time, the stock has a 3.4% yield, which is among the highest in the group, and it is quite safe.

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The company’s leverage ratio is 0.8X, and it has a 4.2X coverage ratio, indicating that there is enough cash flow on the books to support the payment and prolong the 3-year history of dividend increases to at least 4 and 5 years. Kraft Heinz (NASDAQ: KHC) is the only stock in the group with a greater yield and comparable value, and it is also heavily exposed to the retail snacks industry.

Analysts have yet to provide commentary, but rest confident that it is on its way. The trend in sentiment is favorable, so investors can expect sentiment to continue to strengthen and the consensus price target to rise. As of now, analysts rate Conagra Brands as a Firm Hold/Weak Buy, with a price objective set below the firm’s current trading level (but trending higher).

Conagra Brands Breaks Through Technically

Conagra Brands is experiencing a breakout that is best seen using monthly statistics. The 3.3% price increase sees it trading near $40, its highest level since mid-2017. Assuming the market acts on the signs and news, this stock should at the very least retest its all-time highs, if not break out to a new high.

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