On Friday, Deutsche Bank (ETR:DBKGn) adjusted its price target on shares of ConAgra (NYSE:CAG), moving it down to $28 from the previous $29, while maintaining a Hold rating on the stock. Currently trading at $26.81, near its 52-week low of $26.21, InvestingPro analysis suggests the stock is undervalued.
The revision comes as ConAgra faces increased full-year cost inflation, now approximately 4%, up from the earlier estimate of around 3%. This rise in costs is mainly due to continued inflation in protein and egg costs, with secondary impacts from cocoa and sweeteners.
The company has consequently lowered its fiscal year 2025 gross margin outlook, anticipating a 90 basis points decline from its current 27.39% margin. This adjustment is attributed to the peak cost headwinds expected to ease into the third quarter.
However, the third quarter's profitability is anticipated to suffer due to the timing of trade investments shifted from the second quarter and increased spending on innovation. Despite these challenges, the company maintains a significant 5.22% dividend yield, having maintained dividend payments for 49 consecutive years.
On the flip side, the fourth quarter could see some relative advantages stemming from better-timed investments and targeted incremental pricing introduced late in the third quarter, which aims to offset the higher cocoa and sweeteners costs. Although the market now seems to have a grasp on these third and fourth quarter dynamics, Deutsche Bank has adopted a more cautious perspective looking forward to fiscal year 2026.
ConAgra's current exposure to largely unhedged protein and egg costs is projected to moderate in the first half of fiscal year 2026.
Despite this expectation, there is a possibility that such costs could remain high for an extended period. This could adversely affect profits in the out-years, especially if the consumer backdrop remains weak and limits the company's ability to implement price increases.
With annual revenue of $11.94 billion and a FAIR financial health score, InvestingPro subscribers can access 8 additional key insights and a comprehensive analysis of ConAgra's financial outlook.
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