Are you ready to get defensive with a tasty stock pick? As inflation weighs on the U.S. consumer in 2024, investors shouldn’t expect Campbell Soup (NYSE:CPB) to report blockbuster revenue or earnings growth. That said, a recent acquisition will enhance Campbell Soup’s product line, so I am bullish on CPB stock.
Campbell Soup offers a wide variety of food products that you’ll find on grocery-store shelves, including Campbell’s brand soups, Prego pasta sauce, Pepperidge Farm cookies, and Pop Secret popcorn. As long as Americans consume convenient, sugary and salty food items, Campbell Soup stock should remain a go-to defensive pick for conservative investors.
However, like other store-bought food producers, Campbell Soup has had to deal with persistent food inflation. It’s a tough terrain to navigate, but Campbell Soup just served up some financial figures that weren’t bad at all.
Campbell Soup and “Stretchable Meals”
I’ve heard about Americans trying to stretch a dollar, but here’s a new phrase from Campbell Soup CEO Mark Clouse. Regarding Campbell Soup’s report for the third quarter of Fiscal Year 2024 (which ended on April 28, 2024), Clouse stated, “As consumers continue to focus on stretchable meals, the cooking side of the portfolio benefited in the quarter with notable dollar share gains in condensed cooking and broth.”
The concept of “stretchable meals” makes sense as American consumers grapple with food-price inflation that just seems endless. Perhaps this means people will have to use less food, which isn’t good news for Campbell Soup. However, if people cook at home to save money instead of going out to eat, then one can see why Campbell Soup would thrive in the “condensed cooking and broth” category.
In any case, with or without the help of “meal stretching,” Campbell Soup fared reasonably well in Q3 of FY2024. The company grew its revenue 6% year-over-year to $2.369 billion, slightly outpacing the consensus estimate. Furthermore, Campbell Soup reported adjusted earnings of $0.75 per share, up 10% year-over-year and ahead of Wall Street’s consensus forecast of $0.70 per share.
Moreover, Campbell Soup raised its Fiscal Year 2024 net sales growth guidance to a range of 3% to 4%. That’s certainly better than the company’s prior full-year guidance range, which called for a net sales decline of 0.5% to 1.5%.
What prompted Campbell Soup to raise its full-year sales outlook? It’s probably not what you think – but more on that topic in a moment. First, let’s conduct a quick value and dividend check for Campbell Soup.
CPB stock’s price didn’t move much today, and I was able to use TipRanks’ online tools to easily determine that Campbell Soup’s forward annual dividend yield is 3.35%. That’s higher than the consumer defensive sector’s average dividend yield of 2.125%.
What about value, though? If the sector median GAAP-measured trailing 12-month price-to-earnings (P/E) ratio is around 21x, but Campbell Soup’s P/E ratio is 17.33x, then I’d say Campbell Soup passes the good value test.
Campbell Soup’s Tasty Acquisition
Now, let’s circle back to a major reason why Campbell Soup raised its full-year sales guidance. This decision was, according to the company, “driven by the incremental impact of the Sovos Brands acquisition.” This refers to Campbell Soup’s acquisition of Sovos Brands on March 12, 2024.
With that buyout, Sovos Brands brings its famous Rao’s brand pasta sauces to Campbell Soup. I’ve seen Rao’s pasta sauce jars practically fly off the shelves at local grocery stores. Sometimes, the stores are completely sold out of those sauces.
So, it’s not unrealistic to expect the Sovos Brands acquisition to boost Campbell Soup’s sales this year. I should also mention that, besides pasta sauces, Sovos Brands also offers frozen entrées, dry pasta, frozen pizza, and soups.
RBC Capital Markets analyst Nik Modi seems to agree that the Sovos Brands buyout will greatly benefit Campbell Soup in the coming quarters. “We are encouraged by Campbell’s successful acquisition of Sovos, which could help pull the company out of its current lull and reinvigorate growth,” Modi remarked.
Is Campbell Soup Stock a Buy, According to Analysts?
On TipRanks, CPB comes in as a Hold based on one Buy, 11 Holds, and three Sell ratings assigned by analysts in the past three months. The average Campbell Soup price target is $45.73, implying 3.3% upside potential.
Conclusion: Should You Consider Campbell Soup Stock?
Analysts aren’t ultra-bullish on Campbell Soup right now, and I’ll admit that the company’s recently reported quarterly results weren’t mind-blowing. Yet, the results were still pretty good, and Campbell Soup’s Savos Brands acquisition will likely boost the company’s total sales.
Besides, defensive investors should be glad to know that Campbell Soup isn’t too richly valued and pays a better-than-average dividend. Consequently, I’m looking forward to seeing how Campbell Soup performs throughout the year with the Rao’s pasta sauce brand under its belt, and I’m definitely considering a long position in CPB stock.
