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Author: astroview80 One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 41634  
Subject: CAG Date: 12/14/2005 11:18 PM
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On the 20 year charts its below 2 standard deviations (-2.22) and has a RF of 1.77. It might not have gotten any notice because the return factor isn't more than 2.0.

And it has a 5.40% dividend yield. It seems safe, according to even the lowest analyst estimate at yahoo it should have an EPS of 1.30 (ending in May 2007 apparently?) which would cover the yearly dividend of 1.09. However the company didn't raise its dividend, first time that has happened in 30 years apparently so that might indicate a cut. And the newest earnings came in below expectations.

I guess the issue for me is the Due Diligence as usual. It seems the company is trying to change from a meat/commodity producer (it sold its fresh beef and pork processing) into selling packaged foods, so how does that change the business model which is reflected in the charts. Is the company no longer valid as a BMW company because its selling off units and buying other companies? My intution says no but I can't be sure without more research...


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Author: Fool2Believe Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10625 of 41634
Subject: Re: CAG Date: 12/15/2005 7:16 AM
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I've held CAG for several years. The lack of an increase in the dividend bothers me.

The EPS estimates have gone from .46/share to .4/share in the last 90 days. That scares me. The first quarter 06 estimate is .37/share.

Unless there's some major changes, I think CAG will just drag along, keeping around 20, or perhaps a little lower. They sometimes remind me of TSN.

My personal guess is that they are more of a speculative buyout play than a long term holding. They do have many well-known brand names that might bring a good price.

I'd like to see some true DD on CAG. I'm still in the learning phases of developing a DD process.

Thanks
Mike



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Author: CultClassic One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10635 of 41634
Subject: Re: CAG Date: 12/15/2005 8:40 PM
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And it has a 5.40% dividend yield. It seems safe, according to even the lowest analyst estimate at yahoo it should have an EPS of 1.30 (ending in May 2007 apparently?) which would cover the yearly dividend of 1.09. However the company didn't raise its dividend, first time that has happened in 30 years apparently so that might indicate a cut. And the newest earnings came in below expectations.

I think that if you check the dividend is consuming a hefty portion of CAG's FCF. North of 70% if I recall. I don't think that the business can sustain it and make its necessary capital investments for a changing business model. Anyhow, I'm holding on for a cheaper price.

sv

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Author: Bakuvdanet Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10637 of 41634
Subject: Re: CAG Date: 12/15/2005 11:45 PM
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Timely inquiry. Been working on an investment thesis for CAG, but haven't had a chance to finish up. Still looking into debt, FCF, etc. (and learning about the concepts in general at the same time). Here's what I have so far. I've decided to wait to see what happens with the dividend.

Bakuv
-----------

ConAgra (CAG) Investment Thesis

Company Name: ConAgra
Ticker: CAG

December 11, 2005
Current Price: $20.13
Dividend Yield: 5.10%

Buy-Around Price: $20.00 - $21.00, wait for dividend announcement

Bought Price: $xx.xx (10% drop -> $18.00)
month day, year

Big Picture / General Observations
Large food processor in the US. Recent struggles with pricing power and increased costs have led to decline in gross profits and potential cut in dividend. Now emphasizing branded products. Commodities trading business is volatile, leading to unpredictable results for a portion of ConAgra's income (what portion of income comes from commodities trading?). Ditched its meat processing business in 2003, I believe, to focus on packaged foods.

Earnings have been unstable, today's EPS of 1.27 is less than that of 5 years ago with a peak of 1.58 in 2003. Dividends have increased each year.

Both the earnings and dividend valuation models price ConAgra with trading range between 20 and about 28 per share. Don't expect it to hit 28 anytime soon.

Seems attractive if looking for a maximum 20% gain sometime within a year. But do not expect double in 2-3 years or longer.

When comparing the pros, cons and looking for a catalyst, it seems the primary catalyst is an emphasis on higher-margin branded products that will hopefully allow them to better pass on increased costs, and in the case of flat or declining costs, increase profits faster than with non-branded products. Any improvements probably won't show up for another couple quarters. Just don't see a catalyst that will propel the stock upward quickly.

Really need to further look into debt and impact of dividend on cash flow.

This appears to be a somewhat risky short-term investment with some long term value. Also, with a good probability the dividend could be cut, the price has a decent chance to decline even more, providing a better buy-in price. Wait for additional info on dividend before making a decision.

Valuation(s)
Ave CAGR Price: $30.33
Earnings Valuation Trading Range: $19.80 to $27.79
Dividend Valuation Trading Range: $20.94 to $30.01
Graham Intrinsic Value: $24.50
S&P Fair Value: $24 w/in 12 months

BMW Method Metrics
Today / At time of purchase:
16-year chart
Ave CAGR = 5.3%
Current CAGR = 2.6%
RMS = -1.92, RF = 1.50
http://invest.kleinnet.com/bmw1/stats16/CAG.html

Current CAGR last 5 years, 2001 to 2005: 0.03%
Average CAGR 2001 to 2005: 4.33% (Ave CAGR Price ~$26.00)
EPS Growth 2001 to 2005: -1.74%
Dividend Growth 2001 to 2005: 5.45%
Potential Sell Prices at Ave CAGR of 5.3%:
Ave CAGR Price +1 RMS Price
December 2005 $30.33 $37.52
December 2006 $31.94 $39.51
December 2007 $33.63 $41.60
December 2008 $35.41 $43.81

Investment Expectations/Timeframe
$24/share -> 20% within a year. Longer than a year -> ???

The Company / Business
One of the largest package food processors in the US. Such brands as Orville Redenbacher, Marie Callender's and Chef Boyardee.

Reason(s) for Recent Share Price Decline
Declines in gross profit, potential for dividend cut, income not keeping up with expenditures.

Catalyst(s)
New CEO. Increased emphasis on higher-margin branded producs. Good results from commodities trading business (not something to count on).

Pros
New CEO, Gary Rodkin who came from Pepsi. Emphasizing higher margin branded products with better pricing power. When doing well, commodities trading business. Price is spiky (ie - volatile). Possible quick return to the mean.

Cons/Risks
Decline in gross profit in past year, even as sales increased, indicates lack of pricing power in the market since couldn't pass on higher costs to the buyers of their products. Not enough cash to keep increasing dividend and continue capital expenditures, leading to selling assets and borrowing in order to pay dividend, possible sign of needing to stop dividend growth or cut the dividend. Could take a while for the catalyst to kick in. When doing poorly, commodities trading business. Payout ratio has increased from 59% to 81%, indicating potential for dividend cut.

Things to Watch
Ability to pass on rising costs to buyers. Change to dividend.

Most Important Buy Factor(s)
Expectation of 20% gain within 1 year, bigger gain in 2007.

What Others Say

Add'l Analysis

Sources:
Background info, pros/cons/risks: S&P Report, analysis dated Nov 08, 2005. Motley Fool article on December 9, 2005 titled, "ConAgra's Junk-Food Dividend" (http://biz.yahoo.com/fool/051209/113416032819.html?.v=2).
16-year CAGR: mklein site - http://invest.kleinnet.com/bmw1/stats16/CAG.html
5-year CAGR: divebomber spreadsheet, 5 years
EPS, dividend, yearly price ranges for valuation: S&P report for SYY
2003 dividend: 2003 Annual Report

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Author: IcyWolf Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10642 of 41634
Subject: Re: CAG Date: 12/16/2005 10:05 AM
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Howdy Baku,

Nicely done! If I read you correctly, you're in waiting mode to see what they say about dividend sustainability? Sounds reasonable ... and sorry I haven't responded sooner on how to look at divvies and payouts et al ... recently swamped on helping inlaws (and outlaws <g>) wade through the Gov't drug plan options <arghhh>. So here is a bit of a peek into a bit of the madness that maybe sometimes masquarades as a method <smile>.

My preliminary peek has me look at the detailed key stats page from Yahoo ...

http://finance.yahoo.com/q/ks?s=DUK


And of course I would seek confirmation from other sources including the Ks and Qs of all Yahoo stuff. Where I first peek is at the payout ratio. 64% don't look bad, but seems high for their type of business. I'd go to my MSN screener and get a list of the industry players and their divvies and payouts for comparison.

I note the falling rev and earnings numbers and they give pause, but your point about them transitioning to higher margin processed food products seems germane. IF CAG were on top of my stack, I would have to dig deeper and look at their competitors vs their projections for sales and earnings ramping for such a transition. My thing would be trying to determine whether they have a reasonable plan vis a vis known competitors for processed food products. Which means I would have to learn about that market a bit. Bottomline for me is can I find the info I believe I need, can I understand it and last but not least, does it make sense in light of their competition and their own initiatives (ie do they have ANY advantages their competitors can't readily address?).

I also note that they have about $1B in debt but about $1.4b CASH on hand. Not a bad position to be making a transition from, compared to having to do so from a significant debt position. Could be they are a bit more pre-emptive than stodgy, which would be a good thing. I note their operating CF looks strong but I'd have to try to figure out whether thats a pre transiion type numeric. or likely indicative for going forward?

Unless their in house projections for FCF is dropping for an extended period of time, such that debt is likely to become an issue, then I would worry about their divvie. Have you read any guidence from CAG on their divvie?

I like their habit of dividend increases, but they seem to have been rather modest increases. I strongly suspect any significant divvie cut will be reflected by roughly a double the amount drop in stock price, which they might ease (or possibly even reverse) by enough of the appropriate kind of preparatory statements of how such a move will lead to increased profits in X months / years. I'd have to read and see how well their new CEO is likely to communicate with investors and how strong of a planning function their management team may have displayed in the past (is this a group likely to pull of a great transition or more likley to milk ye olde cow till dry and then make stew <g>).

The reason I would do all this research would be to try to decide whether its worth investing in BEFORE they announce what the divvie ex-date and amount will be - that would only be extra fat on an extra slow bunny <lupine wink>. Part and parcel of my work these days would be to closley look at CAG and their transition plan and determine for myself whether its even reasonable to use the BMWm for them - is their past business model a reasonable basis for future earnings etc? or not? Right now wihtout having done any research I have to strongly wonder if processed foods and their higher margins are even the same business? That probably shows nothing more than how little I know <wink>.

And if all that sorta wound up having me like CAG, then I would put em on my watchlist and watch for my momentum signals that things are turning the way they should. I don't mind missing the absolute bottom, as I prefer to see a stock doing what I think it should BEFORE my farthings leave the den. I would also set a stop the instant I buy it at roughly 10% under my buy price (and turn it into a trailing stop as the price rises)... If I'm that wrong I could be wronger and why keep throwing money into a wishing well? But thats just moi and furless 2 leggers round here seem to prefer other means (doubling down on falling daggers for instance <horrors>).

Take care & Happy HollyDaze,
IcyWolf

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Author: captainccs Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10644 of 41634
Subject: Re: CAG Date: 12/16/2005 11:21 AM
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Quick first look:

1.- lots of debt, has to be paid off
2.- lots of goodwill, useless stuff on the books

Denny Schlesinger


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