Is this U.S.-China selloff a buy? A top Wall Street voice weighs in
On Monday, Evercore ISI maintained its In Line rating and $49.00 stock price target for Campbell Soup (NASDAQ:CPB). The firm anticipates the company's fiscal fourth-quarter earnings to align with expectations.
The forecast includes increased sales and profitability in the Meals & Beverage sector due to disruptions in private label supply chains, particularly in broth. Moreover, strong sales are expected from the Rao's brand, with consumption reportedly up by 20% year-over-year during the quarter. However, Snacks consumption sales have been unexpectedly weak.
Evercore ISI highlighted the investor anticipation leading up to the September 10 analyst day, driven by the recent acquisition of Kellanova. This acquisition was noted at a multiple of 15 times the projected 2025 EBITDA, compared to Evercore ISI's valuation of Campbell Snacks at 13 times the estimated 2025 EBITDA. The firm also pointed out the company's optimism regarding margin expansion opportunities in both the Snacks and Meals & Beverage segments.
The firm's continued positive outlook for Campbell Soup is based on the potential for sales and profit growth in the Snacks division and sustainable mid-single-digit sales growth for the Rao's brand. This optimism is supported by strategies aimed at increasing household penetration for Rao's.
The In Line rating and stock price target are supported by a sum-of-parts analysis, which suggests a price-to-earnings ratio of 15 times the estimated calendar year 2025 earnings. This is slightly below the five-year average price-to-earnings ratio of 16 times. Campbell Soup's performance and strategic initiatives are expected to be key points of focus during the upcoming analyst day.
In other recent news, Campbell Soup Company (NYSE:CPB) has demonstrated robust financial performance with stable organic net sales and significant growth in adjusted EBIT and EPS for the third quarter of fiscal 2024. This performance has been driven by the acquisition of Sovos Brands and the strong performance of the Meals & Beverages division, despite a slight decline in the Snacks business's organic net sales.
Analyst firms have given mixed reviews, with TD Cowen, Deutsche Bank, and RBC Capital maintaining their Hold or Sector Perform ratings, while JPMorgan upgraded the stock to Overweight and DA Davidson retained a Buy rating. The company has also made strategic investments to optimize its supply chain and reduce costs, including a $230 million investment and a reduction of 415 roles over two years.
Looking ahead, Campbell Soup anticipates a recovery in the first half of fiscal 2025, with adjusted EBIT growth projected to be around 6.5% to 7% for the full year, and adjusted EPS growth of about 2% to 3%.
InvestingPro Insights
Analyzing the latest data from InvestingPro, Campbell Soup (NASDAQ:CPB) showcases a blend of stability and potential concern for investors. With a market capitalization of $15.17 billion and a price-to-earnings ratio of 20.47, the company seems to be valued at a premium compared to Evercore ISI's future earnings estimate. However, the adjusted P/E ratio for the last twelve months as of Q3 2024 stands lower at 16.23, aligning more closely with historical averages.
InvestingPro Tips reveal a mixed financial health picture: the company's short-term obligations exceed its liquid assets, suggesting potential liquidity challenges. Yet, Campbell Soup has a strong track record of dividend reliability, having maintained payments for 54 consecutive years, which may appeal to income-focused investors.
Moreover, the company has been profitable over the last twelve months, with a reported gross profit of $2.987 billion and a gross profit margin of 31.74%, indicating efficient operations and control over costs.
Investors should note that Campbell Soup is trading near its 52-week high, at 99.65% of the peak price. This could be a sign of market confidence or an indication that the stock is approaching overbought territory, as suggested by one of the InvestingPro Tips. For those looking for more in-depth analysis, there are additional tips available on InvestingPro that could further guide investment decisions.
With the next earnings date approaching on August 29, 2024, and the analyst day set for September 10, investors will be keen to see if Campbell Soup's strategic initiatives and performance align with Evercore ISI's projections and whether the current market valuation justifies the company's fundamentals and growth prospects.
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