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Is Campbell Soup Stock Heading for a Decline?


Mar. 4 2019, Published 8:09 a.m. ET

What could drag down Campbell Soup stock?

Campbell Soup (CPB) rose more than 10.5% after the company’s better-than-expected quarterly performance on February 27. Campbell Soup’s top line sustained momentum and came in ahead of analysts’ estimate thanks to incremental sales from its recently acquired brands. Meanwhile, the bottom line fell on a YoY basis but exceeded analysts’ estimate, reflecting lower marketing and selling expenses.

The numbers were good compared to analysts’ estimate. However, the recent surge in buying on the heels of its fiscal 2019 second-quarter earnings release might not continue. Campbell Soup’s sales rose by a strong double-digit rate in the past three quarters on the back of acquisitions. However, top-line growth is expected to decelerate significantly in the coming quarters as the company annualizes its recent acquisitions. Meanwhile, weakness in the base business continues.

Analysts expect Campbell Soup’s top line to decline in the fourth quarter of fiscal 2019. Meanwhile, the top line is expected to remain flat in 2020, which isn’t great news.

Campbell Soup’s adjusted EPS continued to decline and are likely to remain pressured in the coming quarters as an increase in interest expenses, cost pressure on margins, and soft organic sales are expected to remain a drag.

Campbell Soup stock trades at 14.7x its fiscal 2019 estimated EPS of $2.47. Investors likely won’t be willing to pay over 14 times its 2019 EPS estimate for negative growth.

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Stock performance

The majority of packaged food companies have posted healthy growth so far this year. Campbell Soup, General Mills (GIS), Mondelēz (MDLZ), J.M. Smucker (SJM), Conagra Brands (CAG), and Hershey (HSY) are up 10.2%, 21.3%, 18.0%, 12.8%, and 4.7%, respectively, on a YTD basis as of March 1.


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