ConAgra Foods is a powerhouse in U.S. supermarket aisles, and its $5 billion purchase of Ralcorp this past January could be game-changing.
The acquisition transformed ConAgra into the largest U.S. provider of private-label packaged foods, with store-branded cereals, pastas and jams complementing its stable of name brands, such as Hunt’s, Chef Boyardee and Healthy Choice. Consumer brands represent 43% of total sales and private label 25%; the rest comes from the company’s commercial and food-service operations.
ConAgra’s sales are forecast to grow 17% to $15.5 billion for the company’s fiscal year ending in May and to climb 20% to $18.7 billion in 2014, according to the latest FactSet analyst survey.
ConAgra “should benefit from cost-conscious consumers,” says Tom Graves, equity analyst at S&P Capital IQ, which rates the stock a strong buy.
While its future appears more promising, ConAgra’s stock still trades at a healthy discount to rivals on a forward price-to-earnings basis. Kraft Foods KRFT -0.70% , J.M. SmuckerSJM -0.30% and Campbell SoupCPB 0.00% , for example, trade for more than 18 times 2013 profit estimates.
ConAgra has became more debt-laden with its Ralcorp purchase and will have to use its free cash flow to pay down debt. However, the food maker has committed to its $1 annual dividend through May 2015.
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