On Thursday, CFRA maintained a Hold rating on ConAgra (NYSE:CAG) but increased the stock's price target from $30.00 to $34.00. The revised target is based on a forward price-to-earnings multiple of 12.1 times the firm's estimated earnings per share (EPS) for the fiscal year ending in May 2025 (FY 25).
The EPS projection has been adjusted upward from $2.69 to $2.81, reflecting a more optimistic outlook than the previous forecast of $2.61 for fiscal year 2024 (FY 24).
ConAgra's third fiscal quarter (FQ3), which ended in February, reported an adjusted EPS of $0.69, a 9% decrease year-over-year, yet surpassing estimates by $0.04. The beat was attributed to a higher gross margin of 28.7% compared to the consensus of 27.2%.
Still, this included a one-time insurance benefit that contributed approximately $0.02 per share. The company saw a 2.0% decline in organic sales, marking an improvement from the 3.4% decrease reported in the previous quarter.
The performance in ConAgra's Grocery & Snacks segment showed a lesser decline in volumes at -0.8% compared to -3.7% in the last quarter. Conversely, the Refrigerated & Frozen segment continued to experience negative volumes and price/mix for the second consecutive quarter, with volumes down by 3.3% and price/mix by 4.8%.
Despite these challenges, ConAgra noted an uptick in volume trends during the fourth fiscal quarter to date (FQ4).
ConAgra has been focusing on reducing its debt, as evidenced by a decline in leverage from 3.6 times in the second fiscal quarter (FQ2) to 3.4 times in FQ3. This has been supported by a significant increase in year-to-date free cash flow (FCF) for the current fiscal year, which reached $1.2 billion compared to just $0.4 billion in the same period last fiscal year.
The company's efforts to lower interest expenses are expected to contribute to EPS growth in FY 25, alongside projected low-single-digit organic sales growth and modest operating margin expansion. Moreover, ConAgra offers a dividend yield of approximately 4.6%.
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