Invest in Conagra for Maximum Food Value in 2023

American food companies had a strong year in 2022. One company that lagged behind the rest was Conagra, which saw a 2.69% decline.

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The company, which owns brands such as Birds Eye frozen vegetables, Hunt’s tomato products and Reddi Wip, reported strong results on Thursday. Organic sales rose 8.6% from a year earlier in the company’s second fiscal quarter, which ended on Nov. 27. That was just ahead of analyst expectations for an 8.4% rise, according to Visible Alpha.

Gross margins increased significantly in the most recent quarter, rising to 27.8% from 25.2% the prior quarter. This resulted in a significant increase in earnings per share, which rose 38.6% from a year earlier to 79 cents. This was well ahead of expectations for 64 cents per share, according to Visible Alpha. The company also raised its guidance for organic sales, adjusted operating margins and adjusted earnings per share for its full fiscal year. This news caused shares to rise by around 3% on Thursday.

Conagra was something of an investor darling before the pandemic, prized for its innovation and brand renovation capabilities. However, the company has struggled recently with inconsistent results, missing analyst estimates for earnings per share in four of the five prior quarters, according to Visible Alpha.

Conagra's stock rose by 13.3% in 2022, though there were several sharp selloffs along the way. While this performance looks good compared to most stocks in a down year, it lagged behind some of Conagra's food peers, such as Campbell Soup and General Mills.

Conagra appears to be turning a vital corner. Managers said Thursday that the company has entered a "margin recovery phase," with prices finally catching up to cost inflation after lagging behind for several quarters. This is good news for the company, which has struggled in recent years.

In an investor presentation, Conagra claimed that, although prices have increased by around 15% over the past year, consumer demand has remained steady. This is good news for both sales and margins going forward.

Conagra's shares are relatively cheap compared to its peers in the packaged food space, with a forward P/E of 15.8 compared to an average of 17.5 for five major competitors, according to FactSet. A few more quarters of consistent results could help close that gap.