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Jana Partners Takes a Slice Off Conagra Brands Stake

Investment firm Jana Partners (Trades, Portfolio) disclosed earlier this week it pared its stake in Conagra Brands Inc. (NYSE:CAG) by 7.48%.

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 877,353 shares of the Chicago-based company on April 29, impacting the equity portfolio by -2.54%. It now holds around 10.85 million shares. The stock traded for an average price of $34.76 per share.

GuruFocus estimates the firm has gained 10.26% on the investment since the second quarter of 2015. Conagra now represents around 32.24% of Jana's equity portfolio and was its largest holding as of the end of fourth-quarter 2019.

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The company, which produces food products ranging from Birds Eye frozen vegetables and Vlasic pickles to Orville Redenbacher's popcorn, Chef Boyardee canned pasta and Healthy Choice frozen meals, has a $16.65 billion market cap; its shares were trading around $33.51 on Thursday with a price-earnings ratio of 21.78, a price-book ratio of 2.15 and a price-sales ratio of 1.61.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 2 out of 10 supports this assessment as the share price and the price-sales ratio are both near one-year highs.

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On March 31, Conagra Brands reported its financial results for third-quarter 2020. Adjusted earnings of 47 cents per share on $2.56 billion in revenue missed Factset's projections of 53 cents per share on $2.66 billion in sales. While the company said it has witnessed increased demand in its retail business as consumers stocked their pantries in preparation for lockdowns associated with the Covid-19 pandemic, foodservice demand declined as restaurants and other businesses were shut down to help curb the spread of the virus.

As a result, Conagra's management now anticipates sales and profits for the fourth quarter and full fiscal 2020 to exceed expectations.

GuruFocus rated Conagra's financial strength 4 out of 10. As a result of issuing approximately $4.2 billion in new long-term debt over the past three years, the company has poor interest coverage. The Altman Z-Score of 1.69 also warns that the company could be at risk of going bankrupt since its revenue per share has declined over the past five years.

The company's profitability fared a bit better, scoring a 6 out of 10 rating on the back of an expanding operating margin, strong returns that outperform over half of its competitors and a moderate Piotroski F-Score of 4, which indicates conditions are stable. Conagra also has a business predictability rank of one out of five stars. GuruFocus says companies with this rank typically return an average of 1.1% per annum over a 10-year period.

Even with the recent reduction, Jana remains Conagra Brands' largest guru shareholder with a 2.23% stake. Other top guru investors are the T Rowe Price Equity Income Fund (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Jeff Auxier (Trades, Portfolio) and Philippe Laffont (Trades, Portfolio).

Portfolio composition

As of the three months ended Dec. 31, 2019, Jana had the majority of its $1.2 billion equity portfolio, which consisted of 10 stocks, invested in the consumer defensive and consumer cyclical sectors.

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The fund's top five holdings as of the end of fourth-quarter 2019 were Conagra, Callaway Golf Co. (NYSE:ELY), Bloomin' Brands Inc. (NASDAQ:BLMN), the SPDR S&P 500 (SPY) exchange-traded fund and HD Supply Holdings Inc. (NASDAQ:HDS).

Disclosure: No positions.

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This article first appeared on GuruFocus.