Wells Fargo moved to lower its recommendations on three large packaged-food companies on Thursday, assigning an Underweight rating to Conagra Brands, The Campbell's Company and General Mills. In a note accompanying the changes, the bank warned that the trio faces a convergence of pressures that increase the likelihood of them lagging peers.
Analyst Chris Carey described the rationale succinctly, pointing to what he called "the convergence of EPS risk, high leverage, and tight dividends," and saying this combination "likely drives underperformance vs peers, despite low valuation and sentiment."
The research team quantified its stance relative to consensus: Wells Fargo is looking for FY27 earnings per share to be lower than current Street estimates by roughly 10% for Campbell's, 9% for Conagra and 6% for General Mills. The note also projects leverage - measured as net debt to EBITDA - rising above 4x for all three companies by 2027, which the bank described as the highest levels across its coverage.
Alongside the rating changes, Wells Fargo reduced its price targets, setting Conagra's target at $15, Campbell's at $20 and General Mills at $35. Each target was derived using 2027 earnings multiples, according to the bank.
Carey pointed to several business and cost dynamics that could weigh on results heading into fiscal 2027, citing "sluggish consumption trends, 'inflation creeping higher,' and tight selling, general and administrative expense budgets" as headwinds. He further warned that "leverage and payout ratios are nearing still manageable but certainly uncomfortable levels."
Wells Fargo noted that some investors might argue that recent share price declines have already reflected poor outcomes, but the bank cautioned the sector could be "potentially entering another FY of EPS risk with high leverage."
The analyst did acknowledge upside scenarios, including stronger-than-expected summer consumption, a deceleration in inflation, or better cost-savings execution. Nevertheless, he emphasized that the balance of catalysts is more likely to be negative.
Embedded in the original note was a promotional segment about an AI-driven stock idea tool evaluating General Mills among other companies. That segment highlighted the tool's monthly analysis and referenced past winners identified by the model. The note ultimately left the central message unchanged: earnings pressure, rising leverage and tight dividends are the chief concerns motivating the Underweight calls.
Context - The move signals heightened caution from an analyst covering major consumer staples names, focusing on EPS risk, leverage metrics and dividend sustainability as primary drivers of potential underperformance.