Investing

Earnings Previews: Conagra, Constellation Brands

Paul Ausick

Published: October 4, 2022 9:38 am

The three major U.S. equity indexes closed higher on Monday. The Dow Jones industrials ended the day up 2.66%, the S&P 500 closed 2.59% higher and the Nasdaq closed up 2.27%. All 11 sectors closed higher, with energy (5.8%) and materials (3.4%) leading the way. Consumer cyclicals (0.24%) and consumer staples (1.74%) posted the slimmest gains. Tesla (down 8.6%) was the day’s big loser, following a delivery report that failed to meet expectations. Twitter closed down 3.0%, and Carnival cruise lines dropped about 2.6%. All three major indexes traded higher in Tuesday’s premarket.

This week’s earnings reports represent the last breather before the September-quarter reports begin landing in the middle of next week.

Here is a look at two companies reporting quarterly results first thing Thursday morning.

Conagra Brands

Over the past 12 months, the share price of packaged food giant Conagra Brands Inc. (NYSE: CAG) has decreased by about 2.3%. Inflationary pressure may be steering consumers away from the company’s long list of brands (Duncan Hines, Marie Callender’s, Birds Eye) to store brands that are cheaper. When the company reported second-quarter earnings in July, the shares were up about 2.4% year over year. While the slow decline in the third quarter probably anticipates what the company will report, the generous dividend and high payout ratio could keep some investors happy.

Of 16 analysts following the stock, 12 have Hold ratings, while the other four rate the shares a Buy or Strong Buy. At a recent price of around $32.90 a share, the implied gain based on a median price target of $35.50 is 7.9%. At the high price target of $42.00, the upside potential is 27.7%.

The consensus estimate for fiscal 2023 first-quarter revenue is $2.93 billion, which would be down about 2.3% sequentially but 7.2% higher year over year. Adjusted earnings per share (EPS) are expected to come in at $0.52, down 19.8% sequentially and up 4% year over year. The current estimates for the 2023 fiscal year that ends in May call for EPS of $2.42, up 2.4%, on sales of $12.06 billion, up 4.5%.

Conagra stock trades at 13.6 times expected 2023 EPS, 12.7 times estimated 2024 earnings of $2.59 and 12 times estimated 2025 earnings of $2.74 per share. The 52-week trading range is $30.06 to $36.97, and the company pays an annual dividend of $1.32 (yield of 4.01%). Total shareholder return over the past 12 months is 1.31%.

Constellation Brands

Constellation Brands Inc. (NYSE: STZ) produces, imports and sells beer, wine and spirits in the United States and other countries. With a market cap of around $44.4 billion, it is the country’s largest publicly traded alcoholic beverage stock. The shares have added about 9.9% to their value over the past 12 months, but the price has bounced around, with big drops not quite offsetting big gains. Net debt is low and free cash flow is high. That looks like an opportunity for the company to return more cash to shareholders.

Of 24 analysts covering the company, 19 rate the stock at Buy or Strong Buy, and the other five have Hold ratings. At a share price of around $234.50, the upside potential based on a median price target of $275.00 is 17.3%. At the high price target of $310.00, the upside potential rises to 32.2%.

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Analysts expect Constellation to report fiscal 2023 second-quarter revenue of $2.51 billion, up 6.1% sequentially and by 5.9% year over year. Adjusted EPS are pegged at $2.81, up 5.8% sequentially and 18.1% higher year over year. For the full 2023 fiscal year ending in February, estimates call for EPS of $11.05, up by 8.3%, and revenue of $9.47 billion, up 7.3%.

Constellation stock trades at 22.0 times expected 2023 EPS, 19.2 times estimated 2024 earnings of $12.67 and 16.9 times estimated 2025 earnings of $14.38 per share. The stock’s 52-week range is $207.59 to $261.52. Constellation pays an annual dividend of $3.20 (yield of 1.36%). Total shareholder return for the past 12 months is 11.33%.