Conagra Brands (CAG) After Its Index Reshuffle And The Case For Fair Value

Index reshuffle puts fresh attention on Conagra Brands stock

Conagra Brands (CAG) has just shifted index homes, leaving the S&P 500 and joining the S&P 600 and Russell small and mid cap benchmarks, a change that can alter how some funds hold the stock.

For you as an investor, this kind of index move often matters less for day to day business performance than for how certain passive and rules based portfolios treat Conagra Brands. Inclusion in the S&P 600 and Russell small cap and value indices can prompt buying or selling by index tracking funds that adjust positions around reconstitution dates.

See our latest analysis for Conagra Brands.

Those index changes and the June product launches have landed at a time when Conagra Brands' share price has been under pressure. The 1 day move is down 3.72%, the year to date share price return is down 22.20%, the 1 year total shareholder return is down 30.52%, and the 5 year total shareholder return is down 51.63%. Together, these figures point to momentum that has been fading over a longer horizon.

If you are assessing where to put fresh capital after Conagra Brands' index reshuffle, it can help to widen the lens and look at 20 top founder-led companies

After years of weaker returns, a loss making bottom line, and a large reported intrinsic discount, Conagra Brands now screens as a potential value play. The key question is whether this is a genuine opportunity or if the market is already factoring in any future improvement.

Most Popular Narrative: 8% Undervalued

The most followed narrative currently places Conagra Brands' fair value at $14.59 per share, just above the last close of $13.46. This frames a relatively modest discount for investors to weigh.

The analysts have a consensus price target of $14.59 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 $23.0, and the most bearish reporting a price target of just $12.0.

Read the complete narrative.

The fair value is based on an assumption of a sharp shift from current losses to healthy margins. Earnings, revenue and the future profit multiple are all expected to work together within a tight set of assumptions.

Result: Fair Value of $14.59 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, this depends on Conagra Brands managing inflation driven cost pressures and preserving a dividend that some analysts already view as stretched relative to current earnings power.

Find out about the key risks to this Conagra Brands narrative.

Next Steps

With Conagra Brands facing both concerns and some reasons for optimism, do not sit on the sidelines. Weigh both sides by checking the 3 key rewards and 2 important warning signs

Looking for more investment ideas beyond Conagra Brands?

If Conagra Brands has you reassessing your portfolio, do not stop there. Put fresh ideas on your radar by running a few focused screens on Simply Wall St.

• Hunt for quality at a discount by scanning 43 high quality undervalued stocks that combine solid fundamentals with room for potential re rating.
• Prioritise resilience by checking solid balance sheet and fundamentals stocks screener (48 results) that can better handle tougher conditions and still fund growth.
• Get ahead of the crowd by reviewing a screener containing 19 high quality undiscovered gems before they appear on everyone else's watchlist.

Missing these curated stock ideas could mean leaving stronger diversification and potential opportunity on the table, so make time today to run a few targeted screens.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com