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Jana Partners Pares Stake in Conagra Brands

Investment firm Jana Partners (Trades, Portfolio) disclosed last week it curbed its stake in Conagra Brands Inc. (NYSE:CAG) by 21.6%.

The New York-based firm, which was founded in 2001 by Barry Rosenstein, takes a value-oriented, event-driven approach to picking stocks, often entering activist positions in order to help unlock value for shareholders.


According to GuruFocus Real-Time Picks, a Premium feature, the firm sold 3.2 million shares of the Chicago-based company on Jan. 9, impacting the equity portfolio by -8.38%. The stock traded for an average price of $32.19 per share.

GuruFocus estimates the firm has gained 8.62% on the investment since the second quarter of 2015. Conagra represents 33.22% of the equity portfolio and is its largest holding as of the end of third-quarter 2019.

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The company, which produces food products ranging from Slim Jim beef jerky to Orville Redenbacher's popcorn and Healthy Choice frozen meals, has a $15.59 billion market cap; its shares were trading around $32.03 on Tuesday with a price-earnings ratio of 19.41, a price-book ratio of 2.05 and a price-sales ratio of 1.48.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.

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In December, Conagra reported second-quarter 2020 financial results that were significantly boosted by its acquisition of Pinnacle Foods last year as well as by demand for its snacks and frozen food products. It posted adjusted earnings of 63 cents per share on $2.82 billion in revenue, which topped analysts' expectations of earnings per share of 57 cents on $2.8 billion in sales.

GuruFocus rated Conagra's financial strength 3 out of 10. As a result of issuing approximately $4.2 billion in new long-term debt over the past three years, it has poor interest coverage. The low Altman Z-Score of 1.62 warns the company is under some financial pressure and could be at risk of going bankrupt as its revenue per share has been declining over the past five years.

The company's profitability fared better, scoring a 6 out of 10 rating on the back of an expanding operating margin, returns that outperform at least half of its competitors and a moderate Piotroski F-Score of 4, which indicates its operations are stable. It also has a business predictability rank of one out of five stars. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.

With 2.42% of outstanding shares, Jana is Conagra's largest guru shareholder. The T Rowe Price Equity Income Fund (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Joel Greenblatt (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Jeff Auxier (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio) also have positions in the stock.

Portfolio composition

As of the three months ended Sept. 30, 2019, Jana has more than half of its $1.24 billion equity portfolio, which is composed of 10 stocks, invested in the consumer defensive and consumer cyclical sectors.

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The firm's top five holdings are Conagra, Callaway Golf Co. (NYSE:ELY), Bloomin' Brands Inc. (NASDAQ:BLMN), Axalta Coating Systems Inc. (NYSE:AXTA) and Zimmer Biomet Holdings Inc. (NYSE:ZBH).

Disclosure: No positions.

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This article first appeared on GuruFocus.