Conagra Brands Reports Earnings Deep in Bear Market Territory

Conagra Brands, Inc. (CAG) makes processed and package foods for grocery stores. This includes snacks, refrigerated foods and frozen items. The company also offers edible goods to restaurants under the Foodservice segment and covers private label foods and ingredients under its Commercial Foods segment.

You would think that Conagra would be doing well in a strong economy, but that has not been the case. The stock closed Tuesday, Dec. 18, at $28.56, down 24.2% year to date and in bear market territory at 27.6% below its 2018 high of $39.43 set on June 21. Conagra shares have been crashing since failing to hold the quarterly pivot of $36.14 on Oct. 31.

Analysts expect Conagra to report earnings per share of 57 cents when it releases results before the opening bell on Dec. 20. The food company missed estimates on Sept. 27, but the weakness that followed was a buying opportunity, as the stock traded as low as $32.82 that day and then popped to $37.60 on Oct. 24.

The company is transitioning by acquiring higher-margin products and selling less profitable offerings. These activities have been difficult in an environment of rising transportation and properties costs. In addition, the Foodservice business should continue to be a drag on poor year-over-year comparisons.

The daily chart for Conagra

The daily chart for Conagra shows that the stock moved sideways until a "death cross" formed on Aug. 23, when the 50-day simple moving average declined below the 200-day simple moving average, indicating that lower prices lay ahead. Under this formation, the strategy is to sell strength the 200-day simple moving average, which was doable between Aug. 23 and Oct. 30, when the average was $36.68. This tracked the stock to its 2018 low of $28.41 set on Tuesday, Dec. 18. A key level is the higher of two horizontal lines at $36.14, which is my quarterly pivot and served as a magnet between Oct. 10 and Oct. 31.

The weekly chart for Conagra

The weekly chart for Conagra is negative but oversold, with the stock below its five-week modified moving average of $31.91 and currently below its 200-week simple moving average of $35.11, which is the "reversion to the mean." Note how the stock had been above the "reversion to the mean" since December 2010.

The horizontal lines are the Fibonacci retracement levels of the rally from the March 2009 low of $10.89 to the March 2017 all-time high of $41.65. The stock is below the 38.2% retracement of $29.89 and above the 50% retracement at $26.26. The 12 x 3 x 3 weekly slow stochastic reading is projected to decline to 11.62 this week, down from 15.86 on Dec. 14 and falling further below the oversold threshold of 20.00.

Given these charts and analysis, investors should buy Conagra shares on weakness down to the 50% retracement at $26.26 and reduce holdings on strength to my monthly risky level at $33.69.

Disclosure: The author has no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.