Stable Supply Chains And Productivity Will Deliver Future Success

Key Takeaways

• Strong consumer demand and stabilized supply chains bolster future revenue growth and operational efficiencies, supporting earnings performance.
  
• Effective cash flow management and productivity improvements enable debt reduction, margin expansion, and enhanced earnings per share (EPS) growth.
  
• Challenging macroeconomic conditions, inflation, and supply chain issues present significant risks to Conagra's revenue, margins, and financial performance.

Catalysts

Operates as a consumer packaged goods food company primarily in the United States.

• Strong consumer demand and steady consumption trends bode well for future revenue growth, suggesting that the company can maintain its top-line momentum even amidst a challenging economic backdrop.
  
• The stabilization of supply chain constraints, particularly in the latter half of next year, is expected to improve operational efficiencies and margins, benefiting overall earnings performance.
  
• The incremental 53rd week in fiscal '26 presents an opportunity for additional revenue that could positively impact year-over-year comparisons, positively affecting earnings.
  
• Ongoing productivity improvements, equal to 4% of cost of goods sold, can offset inflationary pressures, supporting margin expansion and helping to boost net earnings.
  
• Continued strong cash flow allows Conagra Brands to prioritize debt reduction, which could decrease interest expenses, thereby improving net income and contributing positively to earnings per share (EPS) growth.

Conagra Brands Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Conagra Brands's revenue will decrease by 0.5% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 9.9% today to 7.9% in 3 years time.
• Analysts expect earnings to reach $905.9 million (and earnings per share of $2.07) by about August 2028, down from $1.2 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.0 billion in earnings, and the most bearish expecting $558 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.5x on those 2028 earnings, up from 7.8x today. This future PE is lower than the current PE for the US Food industry at 21.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.81%, as per the Simply Wall St company report.

Conagra Brands Future Earnings Per Share Growth

Risks

• The macroeconomic environment is extremely dynamic and challenging, affecting Conagra's ability to provide fiscal guidance, indicating potential risks to future revenue and earnings.
  
• Continued inflation and tariffs, along with evolving consumer sentiment, present uncertainties for Conagra that could impact its net margins and earnings.
  
• Supply chain constraints and their lingering higher costs, even as inventories are rebuilt, could negatively affect gross margins and profitability.
  
• There is potential weakness in certain channels, like convenience stores, due to shifting consumer behaviors which could impact revenue in specific product segments.
  
• Unanticipated regulatory or external changes, such as state bans on certain additives and ingredient tariffs, could add further complexity and cost pressures that impact overall financial performance.

Valuation

• The analysts have a consensus price target of $20.933 for Conagra Brands based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.0, and the most bearish reporting a price target of just $18.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.4 billion, earnings will come to $905.9 million, and it would be trading on a PE ratio of 13.5x, assuming you use a discount rate of 6.8%.
• Given the current share price of $18.79, the analyst price target of $20.93 is 10.2% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.