Credit Suisse Raises Price Target on ConAgra (CAG); Sees Possible Move for Pinnacle
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Price: $16.42 +0.92%
Rating Summary:
3 Buy, 17 Hold, 5 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
3 Buy, 17 Hold, 5 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Credit Suisse maintained a Neutral rating on ConAgra (NYSE: CAG) on Friday, while modestly raising its price target from $24 to $25 afte the company reported better-than-expected Q3 earnings on Thursday.
The firm was disappointed that CAG did not raise its FY11 guidance and noted that the upside came from a pull-forward of profits from flour milling out of 4Q. Credit Suisse believes that the biggest news to come out of the conference call was that CAG will be becoming more aggressive on acquisitions.
As the company's cash flows continue to increase and its leverage against its EBITDA continues to decrease, CAG willingness and desire to make a transformative acquisition increases.
Management at CAG commented it was unwilling to lose its investment grade rating to make an acquisition, which leads the firm to believe that it limits the company to a EBITDA leverage if 4.0x and $4.4 billion to deal with. The firm notes this could bring a 25% increase to the company's earnings base.
Credit Suisse said CAG is only looking at opportunities in categories where it already has experience and expertise, but believes the company will most likely be looking at the frozen category, as that is were the company's R&D expertise is.
The firm states, "We think Pinnacle Foods, which is owned by Blackstone (NYSE: BX), would be a good fit with brands like Hungry-Man and Bird's Eye. If we assume a 10x EBITDA multiple, ConAgra could acquire Pinnacle for $4.75B without having to issue a significant amount of equity."
The firm was disappointed that CAG did not raise its FY11 guidance and noted that the upside came from a pull-forward of profits from flour milling out of 4Q. Credit Suisse believes that the biggest news to come out of the conference call was that CAG will be becoming more aggressive on acquisitions.
As the company's cash flows continue to increase and its leverage against its EBITDA continues to decrease, CAG willingness and desire to make a transformative acquisition increases.
Management at CAG commented it was unwilling to lose its investment grade rating to make an acquisition, which leads the firm to believe that it limits the company to a EBITDA leverage if 4.0x and $4.4 billion to deal with. The firm notes this could bring a 25% increase to the company's earnings base.
Credit Suisse said CAG is only looking at opportunities in categories where it already has experience and expertise, but believes the company will most likely be looking at the frozen category, as that is were the company's R&D expertise is.
The firm states, "We think Pinnacle Foods, which is owned by Blackstone (NYSE: BX), would be a good fit with brands like Hungry-Man and Bird's Eye. If we assume a 10x EBITDA multiple, ConAgra could acquire Pinnacle for $4.75B without having to issue a significant amount of equity."
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