ConAgra’s 6% Drop: Reason for Hope?

ConAgra’s (CAG) is supposed to make things people want to eat. Instead, the market is eating the food company’s lunch today following disappointing guidance.

REUTERS

The Wall Street Journal reports:

ConAgra Foods Inc. cut its full-year earnings outlook, as the packaged-foods company said fiscal first-quarter earnings were softer than expected, especially in its consumer foods segment.

The company now expects full-year adjusted earnings to range from $2.34 to $2.38 a share, down from its prior view of about $2.40.

First-quarter earnings were 33 cents a share, or 37 cents excluding certain items. Analysts polled by Thomson Reuters most recently expected 45 cents a share.

Citigroup’s David Driscoll still has hope for ConAgra’s shares. He writes:

…while ConAgra is off to a disappointing start to F1Q14, we believe that overall US food volumes for the industry and ConAgra are at the cusp of a positive turnaround, in conjunction with the large US crop expected this fall. With ConAgra shares currently trading at 13.5x at the mid-point of management's new F2014 EPS range, we believe that most of the disappointment surrounding today's announcement is likely in the stock….We see good upside in ConAgra shares going forward, as Consumer Food trends are expected to
strengthen, and as Q1 weakness appears to be more macro driven versus a company-specific issue. This puts Kraft (KRFT) under the most scrutiny in our group.

S&P Capital IQ’s Tom Graves concurs:

In light of disappointing EPS guidance from the company, we are lowering our 12-month target price to $38 from $42. Before special items, we are reducing our FY 14 (May) EPS estimate to $2.38 from $2.43, and FY 15′s by $0.08 to $2.62…In FY 14, we expect CAG’s Ralcorp acquisition to be the primary EPS growth driver. We see the stock at an attractive P/E discount to the food group.

Most food producers in the S&P 500 have dropped today. Kraft is off 2.2% at $53.05, Campbell Soup (CPB) has fallen 2% to $41.15 and Kellogg (K) has dropped 1.4% to $59.40.  J.M. Smucker (SJM) has gained 0.4% to $108.53.