Will the Uptrend in Campbell Soup Stock Continue?



What drove the stock higher?

Campbell Soup (CPB) shares have risen 15.0% on a YTD (year-to-date) basis of March 27. The soup maker’s impressive financial performance in the second quarter drove its stock higher. Campbell Soup’s top line has grown at an average rate of 24.3% in the past four quarters. The growth beat analysts’ estimates in the past two quarters.

The acquisitions of Pacific Foods and Snyder’s-Lance have been driving double-digit sales growth. Lower selling and marketing expenses supported the bottom line, which beat analysts’ estimate during the last reported quarter.

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The upside in Campbell Soup stock seems limited. The company’s sales growth rate is expected to decelerate in the coming quarters. Campbell Soup will annualize the benefits from its recent acquisitions and face tough comps. The company’s organic sales remain challenged, which reflects the weakness in soup sales.

Campbell Soup’s margins are expected to decline, which reflects higher input costs, competitive headwinds, and increased supply chain costs. The company’s earnings are projected to decrease in the coming quarters, which reflects weakness in the base business, margin headwinds, and higher interest expenses related to debt taken to finance its acquisition.

Peers’ bottom lines including General Mills (GIS), J.M. Smucker (SJM), and Conagra Brands (CAG) are also expected to be impacted by increased interest expenses.

Campbell Soup stock trades at 15.4x its fiscal 2019 estimated EPS of $2.47 and 14.9x its fiscal 2020 estimated EPS of $2.55. Neither of the figures is attractive given the projected decline of ~14 in the fiscal 2019 EPS and 3.3% growth in the fiscal 2020 EPS.


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