Summary
- The stock has oscillating between $45 and $50 for over a year, with the exception of a brief dip into the low $40 range after the market tanked in spring.
- Campbell Soup has mostly been a beneficiary of the pandemic, seeing unprecedented demand for its products the last 6 months.
- The dividend is a reason to own the stock, but you want to buy it when it yields over 3%.
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- Prepared by Stephanie, Analyst at BAD BEAT Investing
Campbell Soup (CPB) stock has oscillating between $45 and $50 for over a year, with the exception of a brief few weeks' dip into the low $40 range after the market tanked in March thanks to the COVID-19 crisis. That said, as a food company, Campbell Soup has mostly been a beneficiary of the pandemic. During the crisis, it has continued to invest in its businesses and implemented strategic growth plans. The company has experienced unprecedented demand for its products in the last six months.
As for an investment here, you are buying for the dividend, as shares have been range-bound for years. Right now, we think anytime the market gives you an opportunity to buy shares in the $44-46 range, they are a buy. This is when shares will yield over 3% with the dividend being paid, and of course, offers the chance for a few points of appreciation in shares. Over the long term, it is a very stable investment that you can bank the dividend payouts with. Know what you are buying if you pull the trigger. We want to be clear. That said, we want to discuss the most recent earnings, and think shares are a quintessential hold here but a buy sub-$45.
Sales have struggled
It seems like yesterday that we called for profit-taking at $60, but it has definitely been a long time. The stock as a whole is relatively stable. However, it does go on sale now and again, and the astute investor should take advantage of such sales. Fundamentally, Campbell Soup has seen tailwinds from the COVID-19 crisis. Just looking at sales, we see the lack of growth is apparent. We contend that this is at best a very slow-growth name.
We have to say that we were indeed surprised to see sales come in at $2.11 billion last quarter. This surpassed our expectations of $1.8 billion by over $30 million. The Street consensus was for $1.77 billion, so it is a positive to see this target surpassed as well. What is more, revenue growth was 18.4%, which demonstrates the revival of the company. What is going on?
It seems management's strategy to innovate, cuts costs, and focus operations has worked, along with the tailwinds of the COVID-19 buying. Volumes and pricing adjustments helped drive revenue growth, but we have to discuss organic growth.
Organic growth had faced pressure for years. The pain had long stemmed from the fact that many store brands now offer similar products at a reduced rate. The consumer was shifting away from "stay at home" for years. Campbell Soup recognized a few years ago that it simply had not done enough to address this pressing issue. Sales pressures were mounting not only from other food companies, but from grocers themselves offering these store brands. That is why management put into place a plan to overhaul its portfolio and focus it. That was a benefit. Then COVID-19 hit, which was huge boost for sales. Organic net sales, which excluded the impact of an additional week in the quarter versus a year ago, and the impact from the sale of the European chips business (part of the focusing of the portfolio), increased 12% from the prior year driven by favorable volume in both meals & beverages and snacks, reflecting a continued increase in demand as at-home food consumption remained elevated.
