CONAGRA FOODS INC. $20 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 447.2 million; Market cap: $8.9 billion; Price-to-sales ratio: 0.7; WSSF Rating: Above Average) makes a number of packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter and Orville Redenbacher popcorn.
In its third fiscal quarter, which ended February 22, 2009, ConAgra’s earnings per share rose 17.6%, to $0.40 from $0.34 a year earlier. These figures exclude several non-recurring items, but they include a $0.05-a-share gain on hedging contracts, which ConAgra uses to lock in costs for wheat, corn and other ingredients. As well, ConAgra paid $0.03 a share in legal costs related to a 2007 peanut-butter recall that was caused by a salmonella outbreak.
Sales rose 6.1%, to $3.1 billion from $3 billion. ConAgra raised its selling prices because of higher raw-material costs. This offset lower sales volumes.
ConAgra continues to benefit from its plan to focus on its packaged-food operations. This includes its $2.8-billion sale of its commodity-trading operations in June of last year. Getting out of the volatile trading business gives ConAgra more predictable revenue streams and cuts its risk.
The company put $1.1 billion of the proceeds toward its debt. ConAgra’s long-term debt of $3.1 billion is now a manageable 35% of its market cap. It also used $900 million to buy back shares.
The stock trades at 13.2 times the $1.52 a share that ConAgra should earn in fiscal 2009. The $0.76 dividend yields 3.8%.
ConAgra is a buy.
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