ConAgra Foods, Inc. (CAG): This Food Giant Looks Quite Appetizing

Potential synergies of Ralcorp acquisition

Looking forward, Mondelez expected that its organic top line growth would stay in the low end of 5%-7%. It might face some near-term difficulties, including capacity constraints and lower coffee pricing in several markets. The operating EPS might come in at around $1.55 to $1.60 per share. For Kraft Foods, it was expected to deliver around $2.75 in EPS, including restructuring program cost of around $300 million for the year. The free cash flow would be around $1 billion. ConAgra will enjoy more benefits from Ralcorp acquisition, including Ralcorp’s efficient sales channels and price points. Moreover, it could have a more balanced product portfolio. After the acquisition, the Branded segment would be the largest revenue source, accounting for 43% of the total sales while the Private Label and Commercial/Foodservice represented around 25% and 32%, respectively, of the total revenue.

My Foolish take

Despite the high leverage level, ConAgra looks quite attractive with significant synergies from the Ralcorp acquisition. In addition to the above-mentioned operating synergies, ConAgra also expected to realize around $225 million per year by the fourth year in cost synergies. If ConAgra has a similar earnings valuation to Kraft Foods and Mondelez at around 17 times forward earnings, ConAgra should be worth more than $46.50 per share, nearly 33% premium to its current trading price.

The article This Food Giant Looks Quite Appetizing originally appeared on Fool.com and is written by Anh Hoang.

Anh HOANG has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Anh 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.