UPDATE: J.P. Morgan Reiterates Overweight Rating, Raises PT on ConAgra Foods on Long-Term Outperformance Drivers

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In a report published Friday, J.P. Morgan analyst Ken Goldman reiterated an Overweight rating on
ConAgra Foods
CAG
, and raised the price target from $40.00 to $41.00. In the report, J.P. Morgan noted, “We maintain our Overweight rating on CAG. Despite yesterday's +5.1% move (SPX +0.6%), the stock is only trading at 14.6x the company's guidance for FY14E, and thus remains the cheapest stock in our packaged food universe. We see two potential drivers to long-term stock outperformance, as follows. First, we think guidance of $2.40 for the year is conservative and likely will be exceeded. We model lower interest expense than guidance ($398MM vs. $410MM). Note that management's $410MM figure seems to assume very low, if any, debt pay down. And we assume the Ralcorp business starts to turn around by the middle of the fiscal year, at the latest. Our FY14E EPS drops to $2.43 from the previous $2.52 to be closer to guidance, but we are still $0.04 above management's new expectation. Second, we think the Street is largely skeptical of CAG's ability to grow EPS 10%+ a year between FY15E and FY17E. We are less skeptical, particularly for FY15E when many acquisition cost synergies kick in and Ralcorp fundamentals are likely to turn around (especially on easy comps). We introduce FY15E of $2.75, above the current consensus $2.73 (a figure we expect to drop today as most analysts likely will lower their FY14E bases).” ConAgra Foods closed on Thursday at $35.04.
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Posted In: Analyst ColorPrice TargetAnalyst RatingsJ.P. MorganKen Goldman
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