CONAGRA FOODS INC. $44 - New York symbol CAG

CONAGRA FOODS INC. $44 (New York symbol CAG; Income Portfolio, Consumer sector; Shares outstanding: 427.1 million; Market cap: $18.8 billion; Price-to-sales ratio: 1.1; Dividend yield: 2.3%; TSINetwork Rating: Above Average; www.conagrafoods.com) bought Ralcorp Holdings, the largest private-label food maker in the U.S., for $4.75 billion in January 2013.

The purchase has not worked out as well as ConAgra had hoped, as strong competition hurt Ralcorp’s sales and earnings. As a result, the company has had to write down this investment by $2.1 billion.

In response, ConAgra has launched a restructuring plan aimed at improving Ralcorp’s profitability. This strategy includes better packaging, speeding up deliveries and launching new products. It has also cut its private-label prices, which should help improve Ralcorp’s market share.

Ralcorp’s problems have attracted the attention of activist investment firm Jana Partners, which now owns 7.2% of ConAgra. Jana will probably push the company to sell or spin off its private-label food business. But even if ConAgra decides to keep Ralcorp, Jana’s involvement should help speed up its restructuring.

The stock jumped 11% on news of Jana’s investment. It’s now up 36% since we made ConAgra our Stock of the Year in 2013. We feel it has more gains ahead.

ConAgra is still a buy.

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