On Friday Standard & Poor’s Rating Services lowered the credit rating for ConAgra Foods, Inc. (CAG) due to the recent report that the packaged food company will acquire Ralcorp Holdings Inc. with funding primarily from debt.
Standard & Poor’s lowered CAG credit from BBB to BBB-, just one step above junk bond status. S&P says that the company’s outlook is stable, however.This downgrade follows the downgrade by Fitch Ratings last month and Moody’s recent report that it is reviewing CAG’s rating.
ConAgra said that its acquiring Ralcorp for about $6.8 billion funded primarily by debt and up to $350 million in equity. This means that CAG will have more than $10 billion in reported debt overall.
“The downgrade for ConAgra reflects our belief that ConAgra will not be able to restore its credit measures, including adjusted debt to Ebitda [earnings before interest, taxes, depreciation and amortization] to below 3x and funds from operations to total debt to nearly 30%, within two years,” S&P credit analyst Bea Chiem said.
ConAgra shares were down slightly in premarket trading on Monday. The stock is up +10.61% year-to-date.
The Bottom Line
Shares of Conagra Foods (CAG) have a 3.42% dividend yield, based on Friday’s closing stock price of $29.20. The stock has technical support in the $27-$28 price area. If the shares can firm up, we see overhead resistance around the $30-$32 price levels.
ConAgra Foods, Inc. (CAG) is not recommended at this time, holding a Dividend.com DARS™ Rating of 3.4 out of 5 stars.
FREE Dividend Stock Newsletter
Get the Dividend.com email newsletter to receive:
- A free copy of our acclaimed report, 5 Rules of Winning Dividend Stock Investing
- Free daily investing tips and picks from Dividend.com CEO Paul Rubillo
- Tons of great market analysis and recommendations