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It’s looking likely that Conagra Brands will take a hit from rising inflation, according to Bank of America. The bank downgraded the food and consumer packaged goods company to an underperform rating from neutral. Simultaneously, analyst Peter Galbo cut his price objective to $20 from $27. Shares of Conagra Brands have stumbled 19% this year. Galbo’s updated forecast corresponds to a roughly 11% downside from the stock’s Wednesday closing price. CAG YTD mountain CAG YTD chart Conagra, which owns brands such as Marie Callender’s, Hunt’s, Slim Jim, Reddi-wip and Orvelle Redenbacher’s, is likely to see an upcoming earnings hit from several headwinds, Galbo noted. “Our rating, estimate, and target multiple revisions reflect our view that CAG faces unique challenges within packaged food heading into its FY26 based on 1) the company’s inflation basket within COGS (protein) and 2) the limited additional pricing power we see in CAG’s largest category (single-serve frozen meals), which have elevated demand elasticities,” he wrote. Specifically, inflation over the next 12 months will hit protein options such as chicken, beef and pork. Currently, proteins alone represent around 12% of Conagra’s total cost of goods basket. Other areas such as ingredients and packaging also probably will face inflationary headwinds. “We find it unlikely for CAG to rely solely on additional pricing to offset these costs and will likely have to manage through using productivity or other cost-savings initiatives,” Galbo added. On the other hand, demand elasticity for single-serve frozen meals has now approached the higher end of Galbo’s packaged food coverage, which should limit Conagra’s pricing power with its consumers. This is especially true as fast-casual chains like Taco Bell and McDonald’s increasingly offer value meals for consumers, further taking away market share from the frozen meals category, the analyst added. “We find it difficult to see an environment where the consumer can accept additional pricing to the degree needed in order for CAG to effectively offset accelerated input costs,” Galbo remarked. “In addition, we do not view frozen meals as a “pass through” pricing category, unlike other protein sub-categories (deli, meat case), which further complicates the go forward.” Meanwhile, an additional short-term headwind comes from Conagra’s sale of its Chef Boyardee brand, which was completed on June 3. “While we view this as a positive for CAG longer term (Chef growth dilutive), its relative attractiveness from a margin/cash flow perspective are tough to forgo,” Galbo noted.
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