Today, we look at a packaged food producer that has some of the strongest brands in the grocery store, such as Chef Boyardee pasta. ConAgra Foods’ sales to consumers make up 70% of its business, and the company is catering to changing consumer tastes by making its products healthier. ConAgra pursued growth with the $4.75-billion purchase of Ralcorp Holdings in 2013, but it is now planning to sell most of Ralcorp for $2.7 billion. It’s also spinning off its commercial sales business, a move that is expected to unlock value, and has been cutting costs. We see ConAgra as a growth stock to buy.

As consumers, particularly baby boomers, become more health conscious, they are eating fewer canned and packaged foods. In response, ConAgra is switching to organic ingredients and putting less salt and sugar in its products.

The company is also cutting costs and investing in its core brands, which should spur earnings—and dividends—in the long run.

CONAGRA FOODS INC. (New York symbol CAG; www.conagrafoods.com) makes packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter, Orville Redenbacher popcorn and Reddi-wip whipped cream.

Consumers supply 70% of ConAgra’s sales. Businesses, including restaurants and other food makers, provide the remaining 30%. ConAgra’s sales jumped 44.2%, from $12.3 billion in 2011 to $17.7 billion in 2014 (fiscal years end May 31). That’s mainly due to its $4.75-billion acquisition of Ralcorp Holdings, the largest private-label food maker in the U.S., in January 2013.

However, the purchase didn’t work out as ConAgra hoped, so the company agreed to sell most of the Ralcorp business to TreeHouse Foods (New York symbol THS) for $2.7 billion in November 2015. Excluding Ralcorp, ConAgra’s overall sales fell to $15.8 billion in fiscal 2015.

Earnings gained 24.6%, from $1.75 a share (or a total of $760.4 million) in 2011 to $2.18 a share (or $928.9 million) in 2015.

The company expects to complete the Ralcorp sale in early 2016. It will put the cash toward its long-term debt of $6.3 billion (as of August 30, 2015), which is equal to 35% of its market cap. The proceeds will also let it keep paying its $1.00-a-share dividend, which yields 2.4%.-

Growth stocks: Lamb Weston spinoff to unlock value

In addition, the company now plans to spin off its commercial-food operations as a separate publicly traded firm. This new business, called Lamb Weston, sells frozen potatoes and other vegetable products to restaurants and other food makers. It had $2.9 billion of revenue in ConAgra’s 2015 fiscal year.

The remaining operations will operate as Conagra Brands and will focus on the company’s branded consumer foods. It will also hold ConAgra’s 44% stake in the Ardent Mills flour-milling joint venture. In fiscal 2015, these businesses had $7.2 billion of revenue. ConAgra hasn’t yet revealed the details of the split.

However, shareholders will not be liable for capital gains taxes until they sell the Lamb Weston shares they receive. The company expects to complete the spinoff in the second half of 2016.

Meanwhile, ConAgra plans to continue its restructuring, which involves laying off 5% of its workforce and relocating its head office to Chicago from Omaha, Nebraska. These actions should cut $300 million from its annual costs by the end of fiscal 2018.

Thanks to these moves, the stock has gained 17% in the past year. ConAgra will probably earn $2.25 a share in fiscal 2016, and the stock trades at a still reasonable 18.7 times that forecast.

The spinoff and cost cuts should also make the two new firms attractive takeover targets for larger competitors. However, investors should treat any takeover potential as a bonus and not the sole reason to invest.

Recommendation in Wall Street Stock Forecaster: BUY

For our report on how to choose the right growth stocks for your portfolio, read How to make better growth stock picks.