CAG Trading Cheaper Than Industry: What's Next for Investors?

Core Insights - Conagra Brands, Inc. (CAG) is currently trading at a forward 12-month price-to-earnings ratio of 9.68X, significantly below the industry average of 16.03X and the S&P 500's average of 21.88X, indicating potential undervaluation and an attractive investment opportunity [1] - CAG's Value Score is currently rated A, further supporting its attractiveness to investors [1] Financial Performance - CAG's shares have declined by 9.4% over the past three months, while the industry and S&P 500 have seen declines of 3% and 0.9%, respectively [4] - The stock is currently priced at $23.01, close to its 52-week low of $22.38, which may appeal to value-focused investors [4] Growth Strategy - Conagra is actively reshaping its portfolio to align with evolving consumer preferences, focusing on innovation, brand modernization, and strategic acquisitions and divestitures [5] - The company has exited low-growth businesses and is strengthening its presence in key categories [5] Market Position - CAG's diverse portfolio across frozen foods, snacks, and staples allows it to capitalize on various consumer trends while reducing risks from category fluctuations [6] - In the third quarter of fiscal 2025, CAG reported strong consumer demand across its brands, despite facing temporary supply constraints [6] Segment Performance - The snacking segment is a key growth driver, with volumes increasing by 4% in the fiscal third quarter, supported by high-demand subcategories like seeds, meat snacks, and popcorn [7] - However, the Foodservice unit has faced challenges, with sales dropping 6.1% year over year to $256 million, reflecting broader industry pressures [8] International Exposure - CAG's International segment experienced a 17.6% decline in net sales year over year to $224 million, primarily due to adverse currency fluctuations [9] Cost Pressures - Sustained cost inflation, approximately 4% in the fiscal third quarter, has negatively impacted profitability, leading to a 19.1% decline in adjusted gross profit to $704 million [10] - The adjusted gross margin contracted by 389 basis points to 24.8%, with expectations of some margin improvement in the fiscal fourth quarter, though not sufficient to fully offset cost pressures [10] Investment Outlook - CAG's focused brand investments and strong presence in high-growth categories position it for long-term growth, despite near-term challenges such as foodservice segment weakness and cost inflation [13]