Campbell Soup Company Is Why Staples Stocks Will Outperform

Value and Yield is why Campbell Soup Company will outperform

The Campbell Soup Company (NYSE:CPB) Q3 report is one good reason why Consumer Staples Stocks will outperform over the next 12 to 24 months. The main conclusion from the report is that inflation is still rising, but the company has been able to mitigate the impact. This means for investors that the earnings outlook will remain stable or even improve in the face of a decline in the average S&P 500 companies. In the case of Campbell Soup Company, the low 17X earnings it trades for and the high 3.15% dividend it pays will help it outperform others in the consumer staples sector. High flyers like Hormel, Clorox and McCormick trade at much higher valuations of 24X, 25X and 28X while paying much lower dividends. – MarketBeat

“Our improved supply chain execution, along with inflation-driven pricing, has begun to ease the margin pressure we have experienced over the past 12 months. While the business environment remains challenging and we continue to expect significant inflation (our emphasis), our team is performing well, and Campbell has a much stronger foundation today,” said company CEO Mark Clouse.

Campbell Soup Company has a tasty neighborhood

Campbell Soup Company’s results show that the company outperformed at all levels. The company had net sales of $2.31 billion, a 7.6% gain from last year, despite divestments made during the period. Sales surpassed consensus by $0.090 billion or 400 basis points at strength across all segments. On an organic basis, revenue from continuing operations grew 9%, with pricing offsetting a volume decline. Volume was down 3% from last year’s pandemic, while prices were up 11%. On a consumption basis, including inventory levels, sales are up 4% this year and 14% compared to the pre-pandemic period.

The company reported margin compression despite efforts to reduce it, but much less than expected. The 50 basis point decline in GAAP margin was offset by a 90 basis point improvement in adjusted margin, which delivered a solid improvement in earnings. In terms of earnings, Adjusted EBIT was up 23% YOY, GAAP EPS up 32% and Adjusted EPS up 37%, beating the consensus by a dime. Not bad considering the circumstances, but the real benefit is that this consumer goods company is not only benefiting from a shift to cheaper items, but also pricing power.

Guidance is a bit mixed, but ultimately bullish for the stock. The company is raising its revenue outlook by 200 basis points at both ends of the range, but kept earnings per share flat. The company says inflation will be higher than forecast in the second half and will continue to squeeze margins for the foreseeable future.

The Technical Outlook: Campbell’s Bottoms on Firming Sentiment

At least 3 out of 10 analysts who follow Campbell Soup Company have come out with price increases in the wake of the release of the results. The caveat is that their $49 consensus is only 9% above’s consensus, which itself is below current price action. While Campbell’s has bottomed out, it looks like the rally will curb the stock at least for the short term. In the longer term, assuming the company can continue to implement its inflation-lowering efforts, we see the CPB reaching a new all-time high by the end of the year.
Campbell Soup Company Is Why Staples Stocks Will Outperform

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