Morgan Stanley Upgrades ConAgra On Thesis It's Greater Than Sum-Of-Its-Parts

In a report published Thursday, Morgan Stanley analyst Mathew Grainger upgraded the rating on

from Equal-Weight to Overweight, while raising the price target from $37 to $50. The upgrade comes after the company's management indicated its willingness to take up further strategic actions. ConAgra CEO Sean Connolly's updated strategic direction plan includes two widely expected steps of cost savings and private brands divestiture. The company is also willing to adapt its plans to ensure better rewards to its shareholders. In the report Morgan Stanley noted that the company's tone suggested it was "increasingly open" to "more aggressive changes in the portfolio." ConAgra's private label assets and some portions of its consumer segments could attract companies like TreeHouse Foods and

(rated Equal-Weight). A part divestiture or full breakup is expected to enhance the risk-reward. "While CAG could seek to revitalize these assets, we believe their value could potentially be maximized through divestitures which would prove highly synergistic and EPS-accretive (MSe 40-60%) to the acquirers. CAG shareholders, in turn, would benefit via their retained equity stakes in these companies," analyst Mathew Grainger mentioned. "While we still harbor some hesitation that CEO Connolly and CAG's Board would be willing to pursue a full break-up, the increased potential for this outcome – coupled with the limited downside suggested by its already-announced actions – provide an attractive risk-reward framework even after CAG's ~20% gain during L3M," Grainger added.