Moskow: Conagra management ‘highly incentivized’ to drive EPS growth

NEW YORK — Stating its belief that the company is now tracking toward the high end of its long-term sales algorithm of 1% to 2% due to the benefits of increased trial and repeat during the coronavirus (COVID-19) pandemic, Credit Suisse on June 16 raised its fiscal 2020 earnings-per-share estimate for Conagra Brands, Inc. to $2.22, up from $2.18. The New York-based research firm maintained its fiscal 2021 estimate of $2.30 per share.

In the report, research analyst Robert Moskow said the Chicago-based company’s retail sales growth has exceeded Credit Suisse’s expectations.

“Our 24% growth estimate for 4Q (including 6% for the 53rd week) is above consensus of 19% because our Nielsen tracking data indicates that retail sales growth of Conagra’s retail divisions reached 34% in the quarter, well above our expectations three months ago,” Mr. Moskow said. “We think we are being appropriately conservative by factoring in a 3% headwind in the quarter from inventory de-loading and temporary shutdowns at some of Conagra’s frozen foods plants related to COVID-19. But, similar to Campbell, it is possible that the headwind might be bigger than we expect.”

Mr. Moskow also noted that Conagra’s management team is “highly incentivized” to drive EPS growth.

“Achieving FY 21 EPS of $2.28 is highly meaningful for top management because it represents the very low end of the company’s threshold for performance share awards for the three-year FY ‘19-‘21 period in its executive compensation plan,” he said. “(The EPS estimate of) $2.28 represents 25% of the target, $2.50 represents 100%, below $2.28 represents a zero payout.  In addition, the target for the next three-year cycle for FY ‘20-‘22 means a lot for shareholders because it will provide some perspective as to whether the board views the company’s FY ‘22 guidance of $2.66 to $2.76 as a base case or as a stretch.”

Credit Suisse set a target price of $36 for Conagra, up from the company’s price of $33.33 on June 15. Mr. Moskow said faster-than-expected deceleration of at-home food consumption from the easing of social distancing restrictions represents the biggest downside risk to Credit Suisse’s target price for Conagra.

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