Conagra Brands (CAG) Slips To Hold On Lingering Macro Risks

On May 24, Zacks Investment Research downgraded Conagra Brands, Inc. (NYSE:CAG) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies with a Zacks Rank #4 are expected to perform weaker than the broader market over the next few quarters.

Over the last one month, Conagra’s shares lost 2.42%, wider than the 0.18% loss incured by the Zacks categorized Food-Miscellaneous Preparation/Diversified industry.

Factors behind the Downgrade

Conagra intends to boost its revenues and margins on the back of increased business internationalization. However, international operations expose the company to several economic, political and environmental headwinds. For instance, a stronger U.S. dollar, with respect to the currencies (especially

Mexican peso) of several foreign end markets, is currently hurting Conagra’s revenues and margins. Adverse foreign exchange affected the company’s net sales by $4 million in third-quarter fiscal 2017. Further appreciation of U.S. currency would continue to weigh over the company’s top- and bottom-line performance in the quarters ahead.

Also, the company conducts its business in a highly competitive industry. Intense competition raises the bargaining power of consumers and exposes the company to risks of market share loss. Moreover, in order to increase or retain demand from prospective end users, Conagra not only needs to ensure good product quality and prices, but also has to maintain greater corporate transparency by ascertaining the health and wellness aspects of its products. In addition, prices of various raw inputs used by Conagra such as soybeans, pork, oats, beef, poultry, wheat, and corn are highly sensitive to commodity market fluctuations, demand and supply imbalances and unfavorable climatic conditions. Sudden rise in the market prices of such inputs would considerably escalate the company’s raw material, packaging, energy and operational costs. Hence, such price inflations would adversely affect the company’s margins in the near term.

Over the last 30 days, the Zacks Consensus Estimate for the stock has been revised downward for fiscal 2017, indicating negative market sentiments toward the stock.

Stocks to Consider

Some better-ranked stocks in the industry are listed below:

Ollie's Bargain Outlet Holdings, Inc. (NASDAQ:OLLI) delivered an average earnings surprise of 16.80% for the trailing four quarters and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aramark Holdings Corp (NYSE:ARMK) , which carries a Zacks Rank #2 (Buy) at present, pulled off an average earnings surprise of 4.45% in the last four quarters.

Energizer Holdings, Inc. (NYSE:ENR) also carries a Zacks Rank #2 and delivered an average earnings surprise of 21.55% over the past four quarters.

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