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Investors hungry for profits during a possible U.S. economic slowdown may want to nibble on shares of ConAgra Foods (CAG). Conagra quietly is showing signs of a turnaround.

The North American packaged food company renowned for such household names as Orville Redenbacher’s, Slim Jim and Chef Boyardee has rebounded off of a five year low of $19.65 in March and now sits at $25. A major catalyst for this 25% move higher is the commitment of the company’s management to make Conagra a more focused and fiscally leaner corporation. This is evident in the recent selling of several of the company’s non-core brands featuring Cook's Ham, seafood, packaged meats and cheeses.

The company’s new CEO Gary Rodkin even cut back at Conagra’s recent annual shareholder’s meeting by not offering a large buffet style picnic that had been provided in past years to shareholders. Rodkin claimed it was to ensure that the meeting was more about the financials rather than the food. I like his style.

Recent ‘07 first quarter earnings reported that both the Consumer Foods and the Food and Ingredient segments showed operating profit growth of 9% and 10% over quarter one last year. Not bad, since these two segments accounted for a combined 87% of the company’s first quarter sales. It would appear as the company continues to divest itself of underperforming brands and non-core product mixes these numbers will only continue to rise.

The only real negative is found in the company’s Trading and Merchandising operations. The company reported a 71% decrease in operating profits from last year’s quarter. The company cited “less favorable trading conditions for energy-related products and agricultural commodities, as well as lower selling prices for the wholesale fertilizer operations.”

Since high energy costs have hurt just about every company in one way or another over the past 12 – 18 months, I can overlook this segment’s poor performance at least for this quarter. It is also a small portion of the company’s overall business strategy and sales making it even less of a factor.

The company’s board recently approved an overall $650 million buyback and appears committed to paying a .18 quarterly dividend. This is approximately a 2.90% annual yield with the current stock price of 25. I would say these actions demonstrate a commitment to shareholders.

Also, CEO Gary Rodkin has ponied up some of his own cash, buying 150,000 shares over the past six months at approximately $22.60 a share. Another area of note is most of Conagra’s competitors are trading at higher price to sales multiples. For example, industry leader Kraft is trading at 1.71 P/S, while Conagra commands only 1.1 P/S.

Let’s also not forget that the U.S. economy appears to be headed for a slowdown and food stocks tend to outperform in this environment. Many food companies have started to move over the past six months, but there could be plenty left if the economy starts to swoon. A contrarian indicator shows that only two of the 10 analysts that cover Conagra rate it a buy or better. Plenty of room for upgrades, if and when these investment sages scramble for investment havens during a slipping economy.
A $30 share price may be possible within the next 3-4 months.

Disclosure: Author is long CAG

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Source: ConAgra Looks Tasty For Profit-Hungry Investors