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KeyBanc analyst bullish on ConAgra deal

The Associated Press

KeyBanc Capital Markets analyst Akshay Jagdale expects that ConAgra's plans to acquire Ralcorp are a good fit, despite the private food label's poor quarterly performance.

THE OPINION: ConAgra Foods Inc. announced Tuesday that it is buying private-label foods maker Ralcorp Holdings Inc. for $5 billion. The deal, which was unanimously approved by both companies' boards, is expected to close by March 31. It still needs Ralcorp shareholder approval.

The analyst said in a research note Thursday that the deal, which will create the largest private label packaged food business in North America, is a good strategic fit for ConAgra. It gives the maker of Chef Boyardee and Marie Callender products a much larger presence in the attractive and growing private-label industry.

ConAgra expects the deal to have a "modest benefit" in its 2013 financial results, since the transaction is expected to close in March and the company's fiscal year ends in May. Jagdale expects the deal will boost 2014 results on a per-share basis.

However, he lowered his 2013 estimates for Ralcorp as the news of the deal overshadowed its fourth-quarter earnings report the same day. The company earned 71 cents per share on an adjusted basis, short of his forecast of 89 cents per share. As a result, he lowered his 2013 earnings estimates for Ralcorp.

Despite the miss, Jagdale continues to see the deal as a good fit for ConAgra and kept his buy rating on the stock.

THE STOCK: ConAgra shares were unchanged at $29.65 in afternoon trading. The stock is up about 5 percent from its closing price the day before the deal was announced.

Ralcorp shares rose 4 cents to $88.90 on Thursday. It is up more than 25 percent this week on the deal.