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J.P. Morgan Downgrades Conagra, Upgrades Hormel to Neutral

The idea is to have a neutral rating on all the large food companies with 'limited long-term growth potential,' J.P. Morgan analysts wrote.
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J.P. Morgan downgraded food titan Conagra Brands  (CAG) - Get Conagra Brands, Inc. Report to neutral from overweight Friday and upgraded Hormel Foods  (HRL) - Get Hormel Foods Corporation (HRL) Report to neutral from underweight.

The idea is to have a neutral rating on all the large food companies with “limited long-term growth potential,” J.P. Morgan analysts wrote in a commentary cited by MarketWatch and CNBC.

“The rationale for being neutral across the board is simple: We do not see sufficient variances in longer-term prospects to warrant a confident stand in either direction,” they said.

“Over time, this likely will change as unique opportunities emerge, but for now we see a bunch of reasonably similar stories ahead: strong top lines paired with soft gross margins.

“These names tend to work best when investors are fearful and seeking safety. It’s hard to feel safe in traditional packaged food when inflation continues to worsen.”

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The analysts cut Conagra’s price target to $38 a share from $41, but they left Hormel’s price target at $42.

Conagra stock ended off 1.5% at $33.72 it has slid 9% in the past six months amid fading benefit from the pandemic.

Hormel stock ended up 0.85%. It has dropped 12% over the last six months.

As for Conagra, “there’s still plenty to like in [its] story, including (a) the valuation relative to the total peer median, (b) recent market share gains in key categories, and (c) limited price elasticity to date,” the analysts said.

They like Hormel based on valuation, the Planters acquisition, and “turkey fundamentals.”