Breaking Down ConAgra

| About: ConAgra Brands, (CAG)

ConAgra Foods (NYSE:CAG) just reported a great quarter. In the earnings release they blew away EPS estimates of $.36 with an EPS of $.44. A surprise beat of 23.9% on EPS warrants the stock's 6+% increase today. With the stock hitting a new 52-week high, what does the massive earnings beat mean for the company looking forward?

Currently, ConAgra has a P/E of 14.4 versus the industry average of 21.4. ConAgra also has estimated annual EPS of $1.98, which they seem to be poised to beat with the blowout quarter. A P/S of .79, and a one year growth rate of 11.2% make this company look vastly undervalued compared to their peers in the food products industry. There is only negative looking at the fundamentals of this company, with a PEG around 2. However, even that number is slightly skewed noting the recent earnings release.

When breaking down the balance sheet, things seem to get a little hairy. Total assets have been stagnant year over year for the past three years, with the Goodwill assets of the company increasing over 10% in that same time span. A look at the liabilities shows that ConAgra has been unable to retire a meaningful amount of long-term debt. While liabilities have remained virtually unchanged over the past three years, ConAgra's accounts payable has increased by 21.8% over three years.

So what does all of this information mean? Two of the past three years CAG has beaten earnings estimates by an average of 10%. If ConAgra can continue that trend, they will beat the analyst expectations EPS of $.53 with an EPS of $.58-$.59. That will put ConAgra on pace to blow out their annual EPS estimates of $1.98.

In the short term, ConAgra should enjoy the fruits of their labor. An uptick in the stock, especially after breaking through a 52-week high, is well deserved. With a global slowdown in full swing, this stock should be able to side step at least some of the pain others will endure. With this stock closing in on $30 a share, however, Wall Street will look to bring down a company setting record highs while the market enters a correction. ConAgra can avoid that unfortunate future by clearing up those problematic long-term liabilities and their accounts payable.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Tagged: , Processed & Packaged Goods, Earnings
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