ConAgra (CAG) Stock Gains on $2.7 Billion Private Label Unit Sale

ConAgra (CAG) stock is rising in pre-market trading after the company agreed to sell its private label business to TreeHouse Foods (THS) for $2.7 billion.
By Amanda Gomez ,

NEW YORK (TheStreet) -- ConAgra Foods (CAG) - Get Report stock is advancing 3.58% to $42 in pre-market trading on Monday, after the company agreed to sell its private label operations to TreeHouse Foods (THS) for about $2.7 billion in cash.

TreeHouse Foods stock is up 0.42% to $86 in pre-market trading this morning.

The deal, which is expected to close in the first quarter of 2016, includes 32 manufacturing facilities in the U.S., Canada and Italy.

ConAgra will retain some private label units that are connected to its consumer foods business, such as canned pasta, cooking spray, peanut butter and other products.

"The sale of our private label business marks another important milestone as we remake ConAgra Foods into a focused, higher-margin, more contemporary and higher-performing company," ConAgra CEO Sean Connolly said in a statement.

The company plans to use the proceeds from the sale to lower its debt.

Separately, TheStreet Ratings team rates CONAGRA FOODS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate CONAGRA FOODS INC (CAG) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and growth in earnings per share. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 9.3%. Since the same quarter one year prior, revenues slightly increased by 1.1%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, our view is that this company's fundamentals will not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
  • CONAGRA FOODS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CONAGRA FOODS INC swung to a loss, reporting -$1.49 versus $0.35 in the prior year. This year, the market expects an improvement in earnings ($2.26 versus -$1.49).
  • The debt-to-equity ratio is very high at 2.34 and currently higher than the industry average, implying increased risk associated with the management of debt levels within the company. Along with this, the company manages to maintain a quick ratio of 0.25, which clearly demonstrates the inability to cover short-term cash needs.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Food Products industry and the overall market, CONAGRA FOODS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: CAG
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