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Earnings Previews: Conagra, Constellation Brands, Schnitzer Steel, Walgreens

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At Tuesday’s opening bell, stocks were trading a bit higher. In the first quarter hour of trading, the Nasdaq traded up by around 0.9%, the S&P 500 up by about 0.4% and the Dow Jones industrials were essentially flat. An hour later, all three indexes were trading lower.

There have been no earnings reports of note since before Christmas. This week, there are four, all reporting before U.S. markets open on Thursday.
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Conagra Brands

Over the past 12 months, the share price of packaged food giant Conagra Brands Inc. (NYSE: CAG) has increased by about 14.2%. For the past three months, the stock is up 18.6%.

Last week, the company settled a class action lawsuit filed more than a decade ago related to false advertising of its Wesson brand vegetable oil. Conagra sold Wesson to Canada’s Richardson International in February 2019 for an undisclosed sum.

During its fiscal second quarter, Conagra is expected to have been able to raise prices without losing customers. The high payout ratio and generous dividend have remained.

Of 17 analysts following the stock, nine have a Hold rating while another seven rate the shares at Buy or Strong Buy. At a recent price of around $38.70, the shares have outrun their median price target of $38.00. At the high price target of $45.00, the upside potential is 16.3%.

The consensus estimate for fiscal 2023 second-quarter revenue is $3.27 billion, which would be up about 12.7% sequentially and by about 6.9% year over year. Adjusted earnings per share (EPS) are expected to come in at $0.66, up 16.5% sequentially and by 3.1% year over year. The current estimates for the 2023 fiscal year that ends in May call for EPS of $2.47, up 6.5%, on sales of $12.23 billion, up just over 6%.

Conagra stock trades at 15.7 times expected 2023 EPS, 14.7 times estimated 2024 earnings of $2.63 and 13.9 times estimated 2025 earnings of $2.78 per share. Conagra’s 52-week trading range is $30.06 to $339.22, and the high was posted last week. The company pays an annual dividend of $1.32 (yield of 3.4%). Total shareholder return over the past 12 months is nearly 18.5%.

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 $42.8 billion, it is the country’s largest publicly traded alcoholic beverage stock.

The shares have dropped about 7.1% of their value over the past 12 months, including a drop of nearly 10% in just the past month. On the plus side, net debt is low, and free cash flow is high. Also on the plus side, analysts have set a pretty low bar for third-quarter revenue and EPS.

Of 28 analysts covering the company, 22 have a Buy or Strong Buy rating and the other six have Hold ratings. At a share price of around $231.75, the upside potential based on a median price target of $276.50 is 19.3%. At the high price target of $310.00, the upside potential rises to 33.8%.

Analysts expect Constellation to report fiscal 2023 third-quarter revenue of $2.31 billion, down 10.2% sequentially but up 2.6% year over year. Adjusted EPS are pegged at $2.90, down 8.5% sequentially and 7.1% lower year over year. For the full fiscal year ending in February, estimates call for EPS of $11.06, up by 8.4%, and revenue of $9.5 billion, up 7.7%. More than half of 2023’s estimated revenue was posted in the first two quarters of the fiscal year.

Constellation stock trades at 21 times expected 2023 EPS, 18.4 times estimated 2024 earnings of $12.62 and 16.2 times estimated 2025 earnings of $14.35 per share. The stock’s 52-week range is $207.59 to $261.52. Constellation pays an annual dividend of $3.20 (yield of 1.38%). Total shareholder return for the past 12 months is negative 5.8%.

Schnitzer Steel

Schnitzer Steel Industries Inc. (NASDAQ: SCHN), a recycling firm for both ferrous and non-ferrous metals, posted a new 52-week high in early November, when steel prices reached their 52-week low. Since then, the shares have climbed by 7.7%, including a drop of 10.7% in December. In mid-December, the company issued a downbeat preliminary report for the fourth quarter, citing slowing demand due to the macroeconomic environment. Steel prices have increased by about 16% over the past two months but remain about 20% below their 52-week high.
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Just two analysts cover the stock, and they are split in their views. One rates the shares at Strong Buy and the other has a Hold rating. At a share price of around $30.65, the upside potential to a median price target of $36.00 is 17.5%. The median and high price targets are the same.

For the first quarter of fiscal 2023, which ended in November, the sales estimate is $602.73 million. That would be down 32.6% sequentially and 24.5% lower year over year. Analysts expect an adjusted loss per share of $0.46, down from EPS of $0.50 in the prior quarter and EPS of $1.58 in the year-ago quarter. For the full fiscal year ending in August, EPS are forecast at $1.15, down 81.1%, on sales of $2.82 billion, down 19.2%.

The stock trades at 27.5 times expected 2023 EPS, 11.5 times estimated 2024 earnings of $2.75 and 6.9 times estimated 2025 earnings of $4.56 per share. The stock’s 52-week range is $25.96 to $59.70. The low was posted last Friday. Schnitzer Steel pays an annual dividend of $0.75 (yield of 2.45%). Total shareholder return for the past 12 months is negative 37.7%.

Walgreens

Dow component Walgreens Boots Alliance Inc. (NYSE: WBA) was one of 2023’s Dogs of the Dow, the 10 stocks that paid the best dividend yield at the end of December 2022. The stock has dropped by more than 28 over the past 12 months but managed to add more than 18% to its share price over the past three months.

Last month, Walgreens and rival CVS agreed to pay about $10.7 billion (Walgreen’s share is $5.7 billion over 15 years) to settle lawsuits related to the drug stores’ role in selling opioids. Neither company admitted to doing anything wrong.

Of 17 analysts covering the stock, 12 have a Hold rating and two rate the shares at Sell or Strong Sell. At a price of around $37.00 a share, the upside potential based on a median price target of $40.00 is 8.1%. At the high target of $54.00, the upside potential is nearly 50%.


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