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ConAgra Raises The Bar

Posted: Sep 29, 2009 09:19 AM by Glenn Curtis

Tickers in this Article: GIS, HNZ, KFT, CAG

The food business can certainly ebb and flow due to economic conditions. But longer-term I'm extremely bullish on the prospects of the major food companies and particularly ConAgra (NYSE:CAG), which is known for its foothold in consumer foods. Actually, there are several things that make me think that ConAgra is worth digesting.

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Why A Forkfull Makes Sense
The first thing that stands out to me about the company is the headlines it made this past week. The Omaha-based company announced its first-quarter earnings on September 22. There was some good news and bad news there.

The bad was that it missed expectations on the revenue line. But the good news was that it beat EPS expectations by a pretty hefty 4 cents.

Also, in the release it offered the following statement: "The company expects fiscal 2010 full-year diluted EPS from continuing operations, excluding items impacting comparability, to approach $1.70, reflecting the strong performance of the Consumer Foods segment in the first quarter and expectations for continued progress for this segment throughout the balance of the fiscal year."

That's interesting because analysts had been looking for a nickel less (a $1.65 profit). My sense is that this will raise a lot of eyebrows among analysts and institutions. A beat of that size plus an upbeat look is a big thing.

Dividend Snack
Clearly dividends are never guaranteed, plus I don't buy stocks just because of a dividend. That said the dividend ConAgra has served up is kind of hard to pass up. The forward yield is about 3.5%, which is pretty beefy.

Note that some other large food makers have also been paying interesting dividends. Kraft (NYSE:KFT) for instance has a forward yield of about 4.4%. And General Mills (NYSE:GIS), which is a huge name in food, enjoys a forward yield that is approaching 3%. Finally Heinz (NYSE:HNZ), which is best known for its ketchup, has a forward yield of more than 4.2%.

The fact that the shares are trading north of $21 may cut both ways however. In one sense they have enjoyed a big run up from earlier in 2009 and there is always the chance that profit taking could come into play. On the other hand, when a stock trades near its 52-week high as ConAgra does, it can sometimes attract attention and investors, which if it happens could be a plus.

The Bottom Line
I believe that food companies will enjoy excellent growth in the future, and ConAgra is a company that I like very much. Its recent earnings results, its dividend, and its outlook are all things that turn my head. (For more, see 22 Ways To Fight Rising Food Prices.)

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By Glenn Curtis

Glenn Curtis started his career in the 1990s as an equity analyst for a regional firm in New Jersey. There, he covered companies in the technology, entertainment, and gaming industries. Curtis has since worked as a financial writer at a series of both web and print publications, including TheStreet.com and Registered Rep Magazine. He has held his series 6,7,24, and 63 securities licenses.

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