Investing.com -- Wells Fargo has downgraded shares of Conagra Brands, The Campbell's Company and General Mills to Underweight in a note on Thursday, warning that a combination of earnings pressure, elevated leverage and stretched dividend payout ratios leaves the group vulnerable to underperformance.

Analyst Chris Carey said the call reflects “the convergence of EPS risk, high leverage, and tight dividends,” arguing that this mix “likely drives underperformance vs peers, despite low valuation and sentiment.”

Wells Fargo is 10% below FY27 Street EPS for Campbell's, 9% for Conagra and 6% for General Mills, and expects leverage above 4x for all three by 2027, the highest in its coverage. bly.

The bank cut its price targets across the board, lowering Conagra’s to $15, Campbell’s to $20 and General Mills’ to $35, each based on 2027 earnings multiples.

Carey cited sluggish consumption trends, “inflation creeping higher,” and tight selling, general and administrative expense budgets as additional pressures ahead of fiscal 2027.

He added that “leverage and payout ratios are nearing still manageable but certainly uncomfortable levels.”

While acknowledging that some investors may argue that recent weakness has already priced in bad news, Wells Fargo warned that the sector is “potentially entering another FY of EPS risk with high leverage.”

Still, Carey highlighted upside risks, including better summer consumption, easing inflation or improved cost savings, but maintained that negative catalysts are more likely to dominate.