Focus Stock of the Week
ConAgra Foods (CAG)
This week’s Focus Stock of the Week is ConAgra Foods (CAG: $35), which carries S&P Capital IQ’s highest investment recommendation of 5-STARS, or Strong Buy. Our 12-month target price of $40 is 16.9X our calendar 2013 EPS estimate, before special items, of $2.36. This reflects our view that the stock warrants a P/E that is at a discount, based on projected calendar year 2013 EPS, compared to an average P/E (on recent prices) for a group of other packaged food stocks, partly due to our expectation that CAG will have lower operating profit (EBIT) margins than some other major food companies....
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Industry Profile
Packaged Foods & Meats
Our fundamental outlook for the S&P Packaged Foods & Meats sub-industry is neutral. We think the commodity cost outlook for the next 12 months has generally been hurt by hot weather and drought conditions in U.S. agricultural areas, but we look for near-term cost pressure to be relatively modest. Also, for a number of packaged food manufacturers, we view ingredient costs as a relatively small part of the overall retail price paid by consumers. In the past year, we have seen indications of food industry volume softness in the U.S., which we think is at least partly attributable to a cumulative impact from price increases facing consumers and a lackluster economy....
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