How to Play Conagra Brands Stock After a 13% Drop in Three Months

Core Viewpoint - Conagra Brands, Inc. (CAG) is currently facing significant challenges, with its stock underperforming compared to industry benchmarks and broader market indices, raising concerns about its long-term investment potential [1][5]. Stock Performance - Over the past three months, Conagra's shares have declined by 12.5%, compared to a 10.8% decline in the industry and an 8.6% drop in the Zacks Consumer Staples sector, while the S&P 500 has grown by 3.4% [1]. - The stock closed at $25.82, nearing its 52-week low of$25.35, and is trading below its 50- and 200-day moving averages, indicating potential weakness [4]. Financial Challenges - Conagra is grappling with inflation and a downturn in its Foodservice unit, which has led to a contraction in gross margins [6]. - The company initially expected inflation to peak in the second quarter of fiscal 2025, but this relief has been delayed, with cost of goods sold inflation at 3.8%, impacting margins by 2.6% [7]. - Adjusted gross profit fell by 2.3% to $842 million, and adjusted gross margin contracted by 52 basis points to 26.4$292.2 million, with organic sales down by 1% [8]. - Although price/mix improved by 2.9%, volumes decreased by 3.9% due to lost business and sluggish restaurant traffic, reflecting broader macroeconomic challenges [8]. Currency Impact - Conagra's international segment faced a 30-basis-point currency headwind to net sales due to the strengthening U.S. dollar against the Mexican peso, which is expected to pressure profitability in fiscal 2025 [10]. Consumer Dynamics - The company noted that consumer behavior is shifting towards value-seeking and affordability due to ongoing inflation, prompting a revision of its fiscal outlook [11]. - Adjusted operating margin for fiscal 2025 is now expected to be around 14.8%, down from a previous range of 15.6%-15.8% [12]. Earnings Estimates - The Zacks Consensus Estimate for Conagra's earnings per share has been revised downward, indicating a bearish outlook among analysts [13]. - For fiscal 2025, adjusted earnings per share are projected to be in the range of $2.45-$2.50, down from the earlier estimate of $2.60-$2.65 [12]. Strategic Response - In response to these challenges, Conagra is increasing investments in advertising, promotions, and innovation, although the effectiveness of these efforts varies [12]. - Despite strong brand positioning and strategic growth efforts, persistent inflation and a dynamic consumer environment pose challenges for the company [14].