What You Need To Know About Conagra Brands Inc’s (NYSE:CAG) Cash Situation
Two important questions to ask before you buy Conagra Brands Inc (NYSE:CAG) is, how it makes money and how it spends its cash. What is left after investment, determines the value of the stock since this cash flow technically belongs to investors of the company. I’ve analysed below, the health and outlook of CAG’s cash flow, which will help you understand the stock from a cash standpoint. Cash is an important concept to grasp as an investor, as it directly impacts the value of your shares and the future growth potential of your portfolio.
See our latest analysis for Conagra Brands
What is Conagra Brands’s cash yield?
Conagra Brands’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for Conagra Brands to continue to grow, or at least, maintain its current operations.
The two ways to assess whether Conagra Brands’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Although, Conagra Brands generate sufficient cash from its operational activities, its FCF yield of 5.13% is roughly in-line with the broader market’s high single-digit yield. This means investors are being compensated at the same level as they would be if they just held the well-diversified market index.
What’s the cash flow outlook for Conagra Brands?
Can CAG improve its operating cash production in the future? Let’s take a quick look at the cash flow trend the company is expected to deliver over time. In the next couple of years, the company is expected to grow its cash from operations at a double-digit rate of 20.9%, ramping up from its current levels of US$954.2m to US$1.15b in three years’ time. Although this seems impressive, breaking down into year-on-year growth rates, CAG’s operating cash flow growth is expected to decline from a rate of 18.0% in the upcoming year, to 2.3% by the end of the third year. But the overall future outlook seems buoyant if CAG can maintain its levels of capital expenditure as well.
Next Steps:
High operating cash flow growth is a positive indication for Conagra Brands’s future, which means it may be able to sustain the current cash yield. However, if you factor in the higher risk of holding just Conagra Brands compared to the well-diversified market index, the stock doesn’t seem as appealing. Keep in mind that cash is only one aspect of investment analysis and there are other important fundamentals to assess. I recommend you continue to research Conagra Brands to get a better picture of the company by looking at:
Valuation: What is CAG worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CAG is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Conagra Brands’s board and the CEO’s back ground.
Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
