With shares marching 22% higher in the last 6 months, will the market's big appetite for food maker ConAgra endure much longer?
Jim Cramer thinks it will.
"Some guys get it and ConAgra CEO Gary Rodken is one of those guys," said Jim Cramer. Here's why:
First there's the issue of commodity costs.
"The straight-shooting Rodken very famously said that raw costs were 'going through the roof' during the period of raging commodity inflation," reminded the Mad Money host on Thursday's broadcast.
But what was once a headwind – has now become a tailwind. Commodity costs have declined – in some cases dramatically – but the higher prices and/or smaller packages haven't changed.
"That allows for gross margin expansion and terrific cash flow," said Cramer.
Another aspect of Cramer's bullish outlook stems from ConAgra's many name brands which include - Pam, Swiss Miss, Chef Boyardee, and Hebrew National to name but a few.
Familiar names such as these always have devoted customers – and those customers are always willing to pay a little more.
One brand that Cramer's likes especially is Healthy Choice –Cramer says it has few peers. "And it's a fabulous tool for those who want to eat healthier and not gain weight," said Cramer.
In other words, its followers are extremely devoted.
Equally important to Cramer's thesis is ConAgra's recent acquisition of Ralcorp. The deal will transform ConAgra into the top U.S. producer of store-branded foods.
"Private label is one of these trends that cannot be denied—consumers love it because it's cheaper, and grocery stores love it because private label products actually carry higher margins for them. It's win-win."
When taken all together, Cramer thinks you have a recipe for gains.
Costs are down, brands (such as Swiss Miss and Chef Boyardee) generate stronger margins and private label is a big growth area.
"That plays perfectly into Conagra's hand," said Cramer
The latest numbers appear to support the thesis.
For the quarter ended Nov. 25, ConAgra earned $211.6 million, or 51 cents per share, up from $180.2 million, or 43 cents per share, in the same quarter last year. Excluding one-time items, the company said it posted an adjusted profit from continuing operations of 57 cents per share.
Revenue rose 9 percent to $3.74 billion from $3.43 billion.
Read More: ConAgra 2Q Profit Rises 17 Pct on Acquisitions
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