Consumer packaged foods giant
Conagra Brands, Inc. (NYSE: CAG) stock has been a pandemic benefactor that peaked in late August 2020 with the acceleration of economic restarts. Shares have been outperforming the benchmark
S&P 500 index (NYSEARCA: SPY) but have been losing steam as the
race for a COVID-19 vaccine approval approaches. The alarming surge in global
COVID-19 cases has recently caused Germany, France and the U.K. to re-implement partial shutdowns and rollbacks to curb the spread. The U.S. has been historically tracking 30-days behind Europe throughout the
pandemic and fears of potential rollbacks in the U.S. has spurred muscle memory like behavior among consumers engaging in stockpiling ahead of the holiday season. Prudent investors may want to prepare for domestic rollbacks by taking exposure in Conagra shares on opportunistic pullbacks price levels this time around.
Q1 FY 2021 Earnings Release
On Oct. 1, 2020, Conagra released its fiscal first-quarter 2021 results for the quarter ending August 2020. The Company reported an adjusted earnings-per-share (EPS) profit of $0.70 excluding non-recurring items versus consensus analyst estimates for a $0.57, beating estimates by $0.13. Revenues grew by 12.1% year-over-year (YOY) to $2.68 billion beating analyst estimates of $2.61 billion.
Conference Call Takeaways
Conagra Brands CEO, Sean Connolly, provided more color on the quarter. The 12.9% YoY retail sales growth was driven by double-digit growth in the Snacks, Frozen and Staples segments gaining 30 basis points in category share and household penetration boosted by 100 basis points. Single Serve Frozen Meals has been an exceptional growth segment further leverage by co-branding within its product portfolio to transcend beyond legacy forms. Gardein and Health Choice brands are prime examples of legacy brands extending into larger profit pools including soups, jerky and salad dressings. The Frozen segment experienced 13.5% YoY growth with double-digit surge in single/multi-serve meals and plant-based meat alternatives. Snacks segment grew 14.6% YoY and Staples saw 11.6% YoY growth in the quarter.
Flat Guidance
Despite the impressive beat, the Company issued in-line guidance for fiscal Q2 EPS in the $0.70 to $0.74 range in-line with $0.71 consensus analyst estimates. The Company projects organic net sales growth of 6% to 8%. Conagra reaffirmed fiscal full-year 2022 EPS guidance range of $2.66 to $2.76 versus the $2.49 consensus analyst estimates. The Company raised the quarterly dividend by 29% to $1.10 on an annualized basis. The potential for low-balling estimates is highly possible play downplaying the continued acceleration of consumer trends like at-home dining running parallel with the work-from-home trend. This was actually identified in the slide presentation. In addition to a new normal, there is no denying the economic downturn triggered by the pandemic despite the arguable V-shaped recovery.
Extending Tailwinds
CEO Connelly summed it up with ,”We also know from prior recessions, that an economic downturn typically leads to a permanent increase in at-home eating even when growth returns.” The markets are underestimating the consumer demand runway for staples products in the “new normal”. While analysts accept that work-from-home trends are part of the new normal, they overlook the dine-at-home trend spawned out of necessity during pandemic times. Regional rollbacks that place further restrictions on restaurant dining during the winter months is a driver for at-home dining. The Company has noted that deceleration should be expected. This sets the bar low moving forward along with cheaper stock prices which prudent investors can accumulate for surprise upside as the new normal is here to stay.
CAG Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provides a broader view of the landscape for CAG stock. The monthly rifle chart has formed a top as the uptrend stalls out with the 5-period moving average (MA) capping bounces at the $36.47 Fibonacci (fib) level. The monthly stochastic peaked and crossed back down towards the 80-band, which sets up a potential channel tightening to the 15-period MA. While the monthly market structure low (MSL) buy triggered on a breakout through $28.12, there are two dangerous market structure high (MSH) sell triggers in play. The first is a weekly MSH sell trigger under $36.47 with a second potential sell trigger on a breakdown through the $33.65. The weekly rifle chart is also showing signs of a peak as the stochastic coil attempt got cut-off abruptly to cross back down. The falling shares can provide opportunistic pullback levels at the $33.65 monthly MSL/fib, $32.48 weekly lower Bollinger Bands (BBs)/fib, $31.30 fib and the $29.85 fib. While the rifle charts appear to be forming a breakdown, there is a high probability of a bear trap in the making as the market has yet to factor in the extended runway for Conagra growth further camouflaged with low-ball guidance setting the bar low.
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