On Friday, Morgan Stanley maintained its Equalweight rating on shares of ConAgra (NYSE:CAG), while increasing the price target to $32.00 from the previous $29.00. The adjustment comes after ConAgra reported a third quarter with profits surpassing expectations and an improvement in organic sales. Organic sales saw a 2% decline, which was an improvement from the 3.4% decrease in the second quarter of 2024, with volume declining by 1.8%.
The company's gross margin performance was notably better than anticipated, expanding by 50 basis points to 28.7% on a year-over-year basis. This margin increase was attributed to productivity gains which helped mitigate the negative effects of volume deleverage and inflation. However, earnings per share (EPS) fell by 10% to $0.57, impacted by higher advertising and incentive compensation costs, along with a nearly 6% headwind from below-the-line items.
ConAgra anticipates its organic sales to be at the lower end of its forecasted -2% to -1% range and expects its EPS to align with the midpoint of the reiterated $2.60 to $2.65 range, marking a decrease of 6% to 4%. The company has slightly raised its operating profit margin forecast for the year to 15.8%, up from the previously expected 15.6%, due to productivity savings.
The price target set by Morgan Stanley reflects a 10 times multiple on the firm's calendar year 2024 estimates for ConAgra. The new target is based on the company's recent performance and adjusted financial expectations for the year.
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