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Campbell's Soup: Mmmm Good
10/10/2013 7:00 am EST
This company carries S&P Capital IQ's highest investment recommendation of 5-Stars or "strong buy," reports Tom Graves, S&P Capital IQ Equity Analyst in The Outlook.
Founded in 1869, Campbell's Soup's (CPB) current product line includes soup, as well as snack food, beverages, and sauces. Its brands include Swanson broth, Prego pasta sauce, Pace Mexican sauce, Pepperidge Farm, and V8 juices.
We think Campbell's has reshaped its business with three acquisitions in the past 14 months and a planned divestiture.
In August 2012, Campbell's acquired Bolthouse Farms, a provider of fresh carrots, premium beverages, and refrigerated salad dressings, which contributed $756 million of sales in fiscal 2013.
In addition, Campbell's also recently acquired Kelsen Group, a Denmark-based snack business, and Plum Organics, a provider of food for children.
We look for these two acquisitions to provide an increased presence in what we view as good long-term growth areas—China (an export market for Kelsen), and organic food (Plum).
We look for Campbell's to focus on new products, expanding its presence in packaged fresh foods, and growing sales in some international markets. We expect at least near-term challenges in US beverage, North American foodservice, and the Australian businesses.
The company has long term targets for annual sales growth of 3% to 4%, and 5% to 7% annual growth in earnings per share. Over time, we expect that growth to be helped by new or enhanced products.
Areas of new product focus, in our view, will include expansion of the Goldfish snack brand, development of the dinner sauce category, and introduction of a Homestyle soup line.
We also expect some international markets to bring future growth. In Mexico, we look for Campbell's presence to benefit from manufacturing and distribution agreements with two producers in that country.
In fiscal 2012, the company's $2.3 billion in non-US sales included $1.1 billion from the Australia/Asia Pacific region, $562 million from Europe, and $650 million from other countries.
In September 2013, Campbell's and Green Mountain Coffee Roasters announced an agreement that would lead to offering Campbell's Fresh-Brewed Soup K-Cup packs through Green Mountain's Keurig brewers. We look for three varieties of soup packs to launch in 2014, including Homestyle Chicken Broth and Noodle.
Our 12-month target price of $48 reflects a price/earnings (P/E) multiple of 17.7 times estimated calendar year 2014 earnings per share of $2.67, which is close to a food group average.
While our target P/E is significantly above the average forward 12-month P/E of 14.0, at which Campbell's shares traded from 2008-12, we think an upward reevaluation of the broader market, including other consumer staples stocks, in the past few years, will help to support a higher P/E for Campbell's shares.
Also, we anticipate that investors will be encouraged by favorable results from the company's growth initiatives.
We see Campbell's Soup reshaping itself through acquisitions and a planned divestiture.
We expect its growth path to include a focus on strength in core businesses, new product contributions, an expanding presence in packaged fresh foods, and growth in some international markets.
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