Bank of America downgrades this food giant because of rising chicken and beef costs

Bank of America downgraded Conagra Brands to underperform with a price target of $20, citing inflationary pressures on protein costs (12% of COGS) and limited pricing power in single-serve frozen meals due to high demand elasticity and competition from fast-casual chains; this reflects concerns that Conagra will struggle to offset rising input costs through pricing alone. The recent sale of Chef Boyardee, while strategically positive long-term, also presents a short-term headwind due to its margin and cash flow contributions.

Analysis

Bank of America has downgraded Conagra Brands (CAG) to an underperform rating from neutral, concurrently reducing its price objective to $20 from $27, which suggests an approximately 11% downside from the stock's recent closing price and follows a 19% year-to-date decline in CAG's shares. This revision, accompanied by a strongly negative sentiment score of -0.8 for CAG, reflects significant headwinds anticipated for the company heading into its FY26, primarily stemming from inflationary pressures on its cost of goods sold (COGS), where proteins like chicken, beef, and pork account for about 12% of the total. Analyst Peter Galbo highlights that Conagra faces limited additional pricing power, especially in its largest category of single-serve frozen meals, which exhibit elevated demand elasticities and face increasing competition from value offerings by fast-casual chains such as Taco Bell (YUM) and McDonald's (MCD). Consequently, CAG is unlikely to fully offset these rising input costs through price increases alone and will likely need to rely on productivity or cost-saving measures. The recent divestiture of the Chef Boyardee brand, completed on June 3, is viewed as a long-term positive by removing a growth-dilutive asset, but its attractive margin and cash flow contributions present a short-term headwind.

Key Decisions for Investors

• Given Bank of America's downgrade to underperform, projected inflationary impacts on key protein inputs, and constrained pricing power in the critical single-serve frozen meals category, investors should exercise caution with Conagra Brands and might consider reducing existing positions or avoiding new ones.
• Closely monitor Conagra's upcoming earnings reports for evidence of margin compression, the effectiveness of management's proposed productivity and cost-saving initiatives, and any shifts in consumer demand elasticity for its core products.
• Investors should assess the ongoing impact of rising protein costs and the intensified competitive landscape, particularly from value offerings by fast-casual restaurants, on Conagra's market share and profitability before making investment decisions.