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Conagra’s 3Q Profit Guidance Lags Street Estimates; Jefferies Says Buy

Conagra Brands’ 3Q earnings outlook missed the Street’s estimates, while the packaged food manufacturer posted better-than-expected results in the second quarter ending Nov. 29. Shares rose 1.8% in Thursday’s extending trading after closing 5.5% lower on the day.

Conagra’s (CAG) 2Q revenues increased 6.2% to $3 billion and were marginally ahead of analysts’ expectations of $2.99 billion. Organic sales rose 8.1%, reflecting growth across all three retail segments.

Thanks to the improved sales and higher operating margin, Conagra’s adjusted earnings of $0.81 per share climbed 28.6% year-over-year, beating the Street’s estimates of $0.74 per share.

The company’s CEO Sean Connolly said, “We remain confident that Conagra Brands is well-positioned to capture the benefits of the shifting consumer behavior, many of which we believe will continue well into the future.”

As for 3Q, the company expects to generate organic sales growth of 6% to 8%. Adjusted earnings are projected at $0.56 to $0.60 per share, which is below the $0.74 per share analysts had been looking for. (See CAG stock analysis on TipRanks)

Following the results, Jefferies analyst Robert Dickerson maintained a Buy rating and a price target of $41 (21.4% upside potential) on the stock. In a note to investors, the analyst said, “We realize the forthcoming FAH [food at home] demand shift and price/mix reversal effects will likely cause near-term top-line and margin compression through 1H’FY’22, but continue to find the shares undervalued relative to normalized fundamentals and growth vis-à-vis the company’s P/E multiple.”

Unlike Dickerson, the overall consensus among analysts is a Hold based on 2 Holds, 1 Buy and 1 Sell. The average price target of $36.25 suggests that Conagra shares could advance around 7.3% over the next 12 months. Meanwhile, shares were up about 3.4% over the past year.

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