Stock Analysis & Ideas

Campbell Soup Beats Earnings. How Much Upside is Left?

Story Highlights

Campbell Soup delivered a big win in its earnings report. Its primary stock in trade–cheap food–should help it prove a winner in a downturn as well.

A hot bowl of soup—even soup like Campbell Soup (CPB)—is probably the last thing on some people’s minds going into the summer months. However, it’s not that far from the front of mind, as Campbell’s turned in its earnings results just yesterday. Campbell’s posted a big win on the back of one key selling point, and that drew investors’ attention.

Meanwhile, I’m bullish on Campbell’s myself. That one big selling point is really too big to pass up, especially given conditions on the ground right now.

The last 12 months for Campbell’s are largely up, though not quite as up as they were. Campbell’s spent most of the last year between $40 and $45 per share until breaking out in April. A brief surge took the company up over $50 for the first time in that 12 months. However, the gains didn’t last, and the company pulled back to its current level, around $47.

The latest news for Campbell Soup largely stems from its earnings report issued yesterday. The company posted adjusted earnings of $0.70 per share, which readily beat FactSet’s projections of $0.61. The company also turned in a win for revenue, which came in at $2.13 billion against FactSet’s projections of $2.042 billion. Both figures were up significantly against this time last year.

Wall Street’s Take

Turning to Wall Street, Campbell Soup has a Hold consensus rating. That’s based on nine Holds and one Sell assigned in the past three months. The average Campbell Soup price target of $46.33 implies 3% downside potential.

Analyst price targets range from a low of $42 per share to a high of $50 per share.

Investor Sentiment Strongly Backs Campbell Soup

It’s no surprise that investors seem pretty happy with CPB as a whole. The stock currently has a Smart Score of 9 out of 10 on TipRanks, which is the second-highest level of “outperform.”

That demonstrates a pretty clear likelihood that Campbell Soup will outperform the broader market. Meanwhile, most conventional metrics of investor sentiment are happy with the company so far.

Hedge fund involvement—as measured by the TipRanks 13-F Tracker—has a comeback well underway. Hedge funds picked up an extra 34,200 shares last quarter. That’s the fourth quarter in a row that hedge funds have increased their involvement with CPB; it’s been on the rise since March 2021.

Meanwhile, insider trading is fairly brisk at Campbell’s and is mostly focused on buying. In the last three months, there have been five Buy transactions among Campbell’s insiders. That’s all. No insider has sold a share of Campbell’s stock since December 2021. Pulling back to the full year, buyers still outweigh sellers. Buy transactions led Sell transactions 28 to 12.

Retail investors—at least those who hold portfolios on TipRanks—slurped up the stock as well. TipRanks portfolios that held Campbell’s stock were up 0.3% in the last seven days but up 2% in the last 30 days.

Finally, there’s the matter of Campbell Soup’s dividend history. It behaves how an income investor would look for a dividend history to behave. While the worst of the pandemic back in 2020 kept levels stable for most of 2020 from 2021, a slight raise in 2021 showed that Campbell’s got back on track quickly.

However, there was no raise for 2022, which might distress some income investors hoping for regular raises to keep pace with inflation.

Campbell’s is Brewing Up a Tasty Stock

There’s one key point that’s likely to keep Campbell Soup—and Campbell’s stock—bubbling along nicely for the foreseeable future. Spiking inflation and uncertain jobs are going to keep people at home and eating cheaply for some time to come. That’s going to give Campbell’s some time to shine.

It’s no secret that food prices are spiraling out of control. Back in late May, the USDA hiked its range of food price inflation rates to between 6.5% and 7.5%. That’s the highest forecast for food prices since—brace yourself for this one—1981.

With virtually every grocery store’s price tag on the rise, it’s no surprise that customers will seek inexpensive alternatives for food. Dining out is generally not on that list.

Here’s the best part for Campbell’s investors, though: the company is not just soup. In Fiscal year 2021, Campbell’s had basically two divisions: Meals & Beverages and Snacks.

Campbell Soup looked for its Meals & Beverages division to hold its performance and serve as the tentpole of the company. Featuring such brands as Pace, Prego, Swanson, and V8, the division pulled in 53% of the company’s sales.

Snacks, meanwhile, were looking for accelerated growth., and they got it. Snacks—including brands like Pepperidge Farm, Snyder’s, and Lance—represented 47% of sales.

What this should indicate to the investor is that, while Campbell’s is focused on food, it’s got food for all reasons and all seasons. Sure, looking for soup to be a big seller in the warm months might be a bad idea, but Campbell’s has more than just soup afoot here. It can cover nearly any meal at nearly any time of year.

That kind of versatility helps insulate a company against a potential downturn, like the kind of potential downturn that we’re looking at in the months ahead.

With people increasingly looking to eat on the cheap, that means a lot more eating at home. That also means more snacks, and since Campbell’s can deliver on both fronts, it’s a safe bet that Campbell’s will continue to serve up excellent results.

Concluding Views

Granted, Campbell’s may not look that attractive to investors on the surface. Its potential for growth here is minimal at best. There’s actually a downside risk to investing right now. The company is approaching its highest price targets.

However, the stable dividend Campbell offers—sufficiently so to carry on through a pandemic—should be attractive for income investors.

It’s a safe bet that no one will get rich investing in Campbell’s. This isn’t a growth stock; just look at the remarkably narrow gap between high and low price targets. However, this is likely to be a fairly safe harbor for investors.

In fact, it’s likely to be one of the last stocks hit by a downturn. I’m bullish on Campbell’s right now because cheap food will be a draw not only for consumers but for investors too.

Disclosure

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