Shares of ConAgra (CAG) are down a few percentage points in pre-market trading this Thursday morning after the food brands company reported a mixed bag for its fiscal first-quarter earnings.
The parent company of brands like Slim Jim, Hunt’s Duncan Hines, and more reported a profit of $319.7 million, or 67 cents a share. This was a dramatic improvement from the loss of $77.5 million (16 cents/share) this time last year.
The adjusted EPS of 66 cents represented a 15% growth and beat out the FactSet consensus of 60 cents. The boost in profits is a result of improvements to cost of goods sold – which declined by 4.7% for the quarter ended August 27.
But, while the bottom line improved, the top line suffered. Sales fell incrementally to $2.904 billion while analysts were looking for $2.951 billion. The company says this step back can be attributed to an industry-wide consumer slowdown coupled with consumer behavior shifts.
Grocery and snacks grew 1.2%, but it wasn’t enough to offset revenue challenges elsewhere. Refrigerated and frozen sales were the segments that suffered the most in digging deeper into the report. They represented a 4.6% drop.
Looking ahead to fiscal 2024 the company is expected to fall right in line with the FactSet consensus of $2.71 – with EPS somewhere between $2.70 and $2.75.
This report won’t help stock performance, which has been trickling lower and lower since May of this year. CAG has fallen 22% in the past 3 months and 7.5% in the past month alone.
So, what does this mean for investors? Is the profit boost enough to justify holding your position, or is the dwindling sales reason enough to cut losses? We’ve taken a look through the VectorVest stock forecasting software and have found 2 reasons it may be time to sell.
Despite Good Upside Potential, CAG Has Poor Safety and Timing
VectorVest is a proprietary stock rating system that simplifies your trading strategy by telling you what to buy, when to buy it, and when to sell it. You’re given all the insights you need in 3 ratings: relative value (RV), relative safety (RS), and relative timing (RT).
Each sits on its own scale of 0.00-2.00 with 1.00 being the average. This makes interpretation quick and easy. But, it gets even easier. You’re given a clear buy, sell, or hold recommendation based on the overall VST rating for a given stock, at any given time. Here’s what we uncovered for CAG…
- Good Upside Potential: The RV rating is a comparison between a stock’s long-term price appreciation potential (forecasted 3 years out) and AAA corporate bond rates & risk. The RV rating of 1.11 is good for CAG - and the stock is currently fairly valued. But, this is where the positive news ends for investors.
- Poor Safety: The RS rating is an indicator of risk. It’s derived through an analysis of the company’s financial consistency & predictability, debt-to-equity ratio, and business longevity. As for CAG, the RS rating of 0.76 is poor.
- Poor Timing: The RT rating of 0.70 is poor and speaks to the performance this stock has had in both the short and long term. The rating is based on the direction, dynamics, and magnitude of the stock’s price movement. It’s calculated day over day, week over week, quarter over quarter, and year over year.
The overall VST rating of 0.85 is a ways below the average but deemed fair nonetheless. That being said, VectorVest rates CAG a sell right now - suggesting it may be time to cut losses on this stock.
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VectorVest advocates buying safe, undervalued stocks, rising in price. Despite growing profits, sales are suffering for CAG. The stock has good upside potential but is being held back by poor safety and timing.
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