The table below demonstrates the expected return to an investor who invests in the stock today for an investment horizon of four years:
| 2013 | 2014 | 2015 | 2016 | 2017 | |
|---|---|---|---|---|---|
| Adjusted Expected EPS | 2.2 | 2.4 | 2.6 | 2.9 | 3.2 |
| Current PE | 16.2 | ||||
| Current Price | 34.9 | ||||
| Expected Price | 38.81 | 42.69 | 46.96 | 51.66 | |
| Expected Annualized Return (%) | 11% | 11% | 10% | 10% |
Peer analysis
ConAgra looks relatively cheap when we compare the it with its peers.
| Company | Trailing Price-to-Earnings Ratio | Forward Price-to-Earnings Ratio | PEG Ratio (5 year expected) | Trailing Price-to-Sales Ratio |
|---|---|---|---|---|
| ConAgra | 18.88x | 12.89x | 1.23x | 1.03x |
| Kraft Foods (NASDAQ:KRFT) | 20.76x | 17.57x | 3.26x | 1.78x |
| Nestle | 18.49x | 15.93x | 3.68x | 2.11x |
ConAgra is trading a trailing PE ratio of 18.9x, which is slightly higher than Nestle. When comparing the stock on the basis of forward PE ratio, PEG ratio and trailing P/S ratio, ConAgra is the cheapest of all the peer companies, which highlights the fact that it is undervalued.
One of the closest competitors of ConAgra, Kraft Foods Group Inc (NASDAQ:KRFT), is one of North America’s largest beverages and consumer packaged-food companies with annual sales of more than $18 billion. The company is on a roll ever since it spun off its global snacks and candy business into a separate entity, Mondelez International Inc (NASDAQ:MDLZ).
Kraft Foods Group Inc (NASDAQ:KRFT) reported strong first quarter numbers with revenue of $4.5 billion, implying organic growth of 2.1%, and adjusted EPS of $0.76, surpassing analysts’ estimates by $0.12. However the company is expected to grow at 6% annually over the next five years given the fact that its business is concentrated in North America where the packaged-food industry is mature and extremely competitive.
Nestle is a Swiss multinational nutritional food company with annual revenues of $98 billion. The company’s products include infant food, coffee, bottled water, frozen food etc. Nestle recently reported organic growth of 4.3% for Q1 2013, falling short of FY 2012 organic growth of 5.9%. It expects to grow at a rate of 5% to 6% in FY 2014 as a result of a slowing global economy, particularly in the emerging markets where the company witnessed a fall in revenue growth to 11.0% in 2012 from 13.3% in 2011.
The Foolish bottom line
ConAgra is a real long-term bet given the current scenario. The company will face some issues in the first quarter of FY 2014 due to its Lamb Weston operations and the formation of Ardent Mills. Post first quarter, the company is expected to do well on the back of synergies from the Ralcorp acquisition. Even on the conservative side, it can provide handsome returns to investors in the next three-to-five years. In my opinion the stock is a strong buy at the current prices and investors should accumulate shares at every decline.
Nikita Bajaj has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article ConAgra – A Good Long-Term Bet for Patient Investors originally appeared on Fool.com and is written by Nikita Bajaj.
Nikita is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
