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.â€
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.â€
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.