ConAgra Foods (CAG) reported 1q12 adjusted EPS of 29 cents on sales of $3.072 billion. While the company had a better than expected top line it missed on the bottom line by two cents. Commodity costs were clearly the culprit for the miss. However, the stock is only down about 1.75% today. Normally, I would expect CAG to be much lower on an earnings miss. However, I think that shareholders should be cheering the company’s decision to withdraw its unsolicited $94 per share offer for Ralcorp (RAH). Strangely enough RAH is trading higher by about $1 today to just over $76.
Management guided to EPS growth of low to mid-single digits for its 2012 fiscal year with much of the growth to be back ended with increasing costs negatively impacting the early part of the year. That is pretty much what consensus estimates currently expect. In fiscal 2011 CAG earned $1.75. Furthermore, the company is still looking for strategic acquisitions. I plan on discussing those possible acquisition targets in my Restaurant & Food Chain Report Newsletter in the upcoming days.
CAG has traded pretty much in a tight range this year from a low of $21.02 to a high of $26.60. The stock could make a new high next year but I believe that upside potential is limited to $27 or $28. The dividend of 4.0% does provide some level of protection and comfort for shareholders.
Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC was not long any stock mentioned — although positions can change at any time.
Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. You can subscribe at www.restaurantstox.com
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