Packaged-foods giant aims to satisfy “the munchies”

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This U.S. packaged-food maker already sells a range of well-known brands. It now plans to take advantage of the legalization of cannabis in Canada and a growing number of U.S. states with a new snack product aimed at marijuana users with “the munchies.” Meanwhile, its stock trades at 14.6 times the midpoint of its estimated 2019 earnings range and it pays a 2.8% dividend.


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CONAGRA BRANDS INC., $30.02, symbol CAG on New York (Shares outstanding: 485.9 million; Market cap: $14.6 billion; makes packaged foods, including Chef Boyardee canned pasta, Hunt’s tomato sauce, Peter Pan peanut butter, Orville Redenbacher popcorn and Reddi-wip whipped cream.

The company plans to take advantage of the legalization of cannabis in Canada and several U.S. states with a new snack product aimed at marijuana users.

Marijuana’s active ingredient—tetrahydrocannabinol (THC)—tends to greatly increase a user’s appetite (a condition commonly called the “munchies”).

On April 20, 2019—the “4/20” day celebrated by marijuana users—Conagra launched a special version of its Andy Capp’s baked potato snacks. In addition to that product, the company plans to re-vamp others of its snack foods, including Slim Jim pork rinds and Bigs sunflower seeds.

Meanwhile, Conagra continues to cut costs in the wake of last year’s acquisition of food maker Pinnacle Foods Inc. (New York symbol PF). It paid $8.03 billion (64% cash, 36% stock), but if you include Pinnacle’s debt, the price rises to $10.9 billion.

Pinnacle’s top brands include Duncan Hines (cake mixes), Vlasic (pickles), Wish-Bone (salad dressings) and Aunt Jemima (table syrups).

Conagra now expects that eliminating overlapping operations will let it cut $285 million from its annual costs, up from its initial target of $215 million. To put those amounts in context, it earned $250.5 million, or $0.51 a share, in its fiscal 2019 third quarter, ended February 24, 2019.

The company expects to realize 55% of those savings by the end of fiscal 2020 and 95% by the end of 2021.

Conagra still expects to earn between $2.03 and $2.08 a share for all of fiscal 2019. The stock trades at a moderate 14.6 times the midpoint of that range. As it realizes more savings from the Pinnacle acquisition, the company’s earnings will likely rise to between $2.70 and $2.80 a share in fiscal 2022. The $0.85 dividend yields 2.8%.

Conagra Brands is a buy.


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