Wall Street has set ambitious price targets for the stocks in this article. While this suggests attractive upside potential, it’s important to remain skeptical because analysts face institutional pressures that can sometimes lead to overly optimistic forecasts.
Unlike the investment banks, we created StockStory to provide independent analysis that helps you determine which companies are truly worth following. That said, here are three stocks where Wall Street’s estimates seem disconnected from reality and some better opportunities to consider.
Conagra (CAG)
Consensus Price Target: $15.59 (16.5% implied return)
Founded in 1919 as Nebraska Consolidated Mills in Omaha, Nebraska, Conagra Brands today (NYSE: CAG) boasts a diverse portfolio of packaged foods brands that includes everything from whipped cream to jarred pickles to frozen meals.
Why Do We Pass on CAG?
- Declining unit sales over the past two years imply it may need to invest in product improvements to get back on track
- Earnings per share decreased by more than its revenue over the last three years, showing each sale was less profitable
- 4.8 percentage point decline in its free cash flow margin over the last year reflects the company’s increased investments to defend its market position
Conagra is trading at $13.39 per share, or 7.9x forward P/E. To fully understand why you should be careful with CAG, check out our full research report (it’s free).
BellRing Brands (BRBR)
Consensus Price Target: $13.69 (57.8% implied return)
Spun out of Post Holdings in 2019, Bellring Brands (NYSE: BRBR) offers protein shakes, nutrition bars, and other products under the PowerBar, Premier Protein, and Dymatize brands.
Why Do We Think Twice About BRBR?
- Revenue base of $2.33 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Estimated sales growth of 1.3% for the next 12 months implies demand will slow from its three-year trend
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 7.3 percentage points
At $8.68 per share, BellRing Brands trades at 6.7x forward P/E. Check out our free in-depth research report to learn more about why BRBR doesn’t pass our bar.
Fortune Brands (FBIN)
Consensus Price Target: $46.64 (18.4% implied return)
Targeting a wide customer base of residential and commercial customers, Fortune Brands (NYSE: FBIN) makes plumbing, security, and outdoor living products.
Why Are We Out on FBIN?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Sales are projected to tank by 1.2% over the next 12 months as its demand continues evaporating
- Earnings per share have dipped by 6% annually over the past five years, which is concerning because stock prices follow EPS over the long term
Fortune Brands’s stock price of $39.39 implies a valuation ratio of 12x forward P/E. Dive into our free research report to see why there are better opportunities than FBIN.
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