ConAgra Brands cut as Morgan Stanley sees headwinds to growth outlook

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They said the firm sees headwinds to CAG’s growth outlook from softening packaged food volumes, risk of increasing trade down, and potential for increasing reinvestment limiting EPS growth.

“Our OW thesis, which was partly predicated on CAG benefiting from a shift to FAH consumption against a tougher consumer backdrop, is not playing out,” the analysts wrote.

“We also expected CAG to experience an above-consensus GM recovery, and although this materialized, we underappreciated the market’s greater focus on its topline growth outlook, and see risk of increasing reinvestment needs constraining EPS growth.”

While CAG’s valuation remains inexpensive, Morgan Stanley said it sees few catalysts that can drive a multiple re-rating, and the firm will now look for evidence of sustained topline improvement before becoming more constructive on the stock.