Conagra Brands (CAG, Financial) experienced a significant movement today, with its stock price falling by 9.95% to $29.465. This decline follows a disappointing earnings report for fiscal Q1 2025.
For fiscal Q1 2025, analysts had forecasted Conagra to earn $0.59 per share on sales exceeding $2.8 billion. However, the company reported earnings of just $0.53 per share, with sales falling slightly short of the $2.8 billion mark.
Q1 saw sales decrease by 4% and operating profit margins drop nearly 250 basis points to 14.4%, leading to a 20% fall in adjusted earnings. Conversely, GAAP earnings rose 45%, primarily due to a $210 million income tax benefit. Conagra cautioned investors that this tax benefit is not expected to recur.
Despite the earnings miss, Conagra provided guidance suggesting it remains on track to meet or exceed fiscal 2025 targets. The company anticipates adjusted earnings for the year to be between $2.60 and $2.65 per share, with the midpoint above the Wall Street estimate of $2.61. Management also predicted a smaller sales decline in 2025 and an improvement in operating profit margins to 15.6% or higher. Additionally, Conagra expects to convert 90% of operating profit to free cash flow, amounting to at least $1.1 billion for the year.
Evaluating Conagra's (CAG, Financial) current stock status, the company has a GF Value of $35.33, indicating it is modestly undervalued. The stock's PE ratio stands at 40.36, which is close to its 10-year high, suggesting the stock might be overvalued based on historical earnings. The company's price-to-book ratio is at 1.67, which is relatively moderate compared to the industry.
One noteworthy aspect is the company's dividend yield at 4.76%, which appears attractive compared to its peers. However, the financial health of Conagra appears mixed, with an Altman Z-Score of 1.92 indicating some financial stress, though not at bankruptcy levels. Its Beneish M-Score of -3.03 suggests it is unlikely to be a manipulator, which is a positive sign for investors.
Looking at the company's future outlook, the valuation by GF Value suggests that the stock is undervalued, but investors should consider the medium-term warning signs such as a declining operating margin and insider selling. Despite recent setbacks, Conagra's strategic initiatives aimed at improving profit margins and converting a significant portion of operating profit into free cash flow could bode well for its long-term growth.
