Conagra Brands (NYSE: CAG) is facing a challenging market environment, prompting RBC Capital to lower its price target on the stock from $25 to $22, maintaining a “Sector Perform” rating.
The move follows Conagra’s disappointing Q4 fiscal 2025 earnings report and a weaker-than-expected outlook for fiscal year 2026, raising concerns about the company’s near-term profitability and growth prospects. The stock hit a new low yesterday at $18.82, before closing the day down 4.37% at $19.49.
Conagra’s Q4 results revealed an adjusted EPS of $0.56 on sales of $2.78 billion, both figures falling short of analyst expectations of $0.58 and $2.83 billion, respectively. The company attributed the shortfall to a confluence of factors, including persistent inflationary pressures, unfavorable foreign exchange rates, and ongoing supply chain disruptions.
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These challenges have significantly impacted the company’s profitability, leading to a decrease in both net sales and adjusted EPS for the full fiscal year 2025. Net sales decreased by 3.6%, while adjusted EPS dropped by a substantial 13.9% to $2.30. The adjusted operating margin also felt the squeeze, decreasing to 14.1%.
Adding to investor concerns is Conagra’s conservative guidance for fiscal year 2026. Management anticipates organic net sales growth to be in the range of -1% to +1%, a muted outlook that reflects the company’s cautious stance amid ongoing macroeconomic uncertainty. The projected adjusted operating margin of approximately 11.0% to 11.5% and adjusted EPS between $1.70 and $1.85 further underscore the challenges Conagra faces in the coming year. This EPS guidance falls significantly below the $2.30 reported for fiscal year 2025, signaling a potentially difficult year ahead.
A key factor impacting Conagra’s profitability is the rising cost of goods sold, which the company expects to increase by approximately 7% in fiscal year 2026. A significant portion of this increase, around 3%, is attributed to tariffs on imported goods, particularly from China and metals.
These tariffs are adding significant pressure on Conagra’s margins, forcing the company to explore various mitigation strategies, including cost-saving initiatives, alternative sourcing options, and strategic price adjustments.
Despite the near-term headwinds, Conagra is actively investing in its brands, supply chain flexibility, and volume recovery. CEO Sean Connolly has emphasized the company’s commitment to strengthening its position in high-potential frozen and snacks categories.
However, RBC Capital analysts noted that these investments, while crucial for long-term growth, are being made during a particularly challenging time, potentially weighing on near-term profitability and hindering the stock’s ability to gain traction.
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