Campbell Soup Stock: Not Great, But Cheap Enough to Worth Consideration (NYSE:CPB)

VelhoJunior

One of the most iconic companies in the world, especially when talking about those dedicated to the food space, has to be Campbell Soup Company (New York Stock Exchange: CPB). This company, which dates back to 1869, has become a global force in provide soup and other related products. Over the past few years, the company’s fundamental performance has been somewhat mixed. Revenues have increased and some profitability measures have followed suit. But at the same time, others have been rather volatile. While that’s a problem, it’s also true that the company’s shares are trading at very cheap levels compared to similar high-quality food suppliers. And in absolute terms, stocks are still affordable. Because of all of this, I’ve decided to rate the company as a ‘Buy’, indicating that I feel it should outperform the broader market for at least the foreseeable future.

Take a bite of Campbell Soup Company

If you’re reading this article, chances are you already know a little about the Campbell Soup Company. In fact, most Americans know something about this company. According to management, Campbell Soup Company is focused on providing a variety of food products to its customers. To better understand the business, we need to break it down into its various operating segments. The largest of its segments to date is called Meals and Drinks. Through this, the company sells products such as Campbell’s condensed and ready-to-serve soups, Swanson broth and broths, Pacific Foods broth, soups and non-dairy beverages, Prego pasta sauces, sauces Mexican Pace, any variety of other products such as juices, canned poultry, etc. Last year, this particular segment accounted for 53.5% of the company’s revenue and 62.6% of its segment operating profits. The other segment is called Snacks. Through it, the Company sells products such as Pepperidge Farm cookies, crackers, fresh baked goods and frozen goods, as well as other related offerings. It sells Milano cookies, Goldfish crackers, Hanover Snyder pretzels, Kettle Brand potato chips, Emerald nuts, and other similar products. This unit is also responsible for its Latin American retail business and its European chip business. Last year, this segment accounted for 46.5% of the company’s revenues and 37.4% of its segment operating profits.

There are other ways to divide the business. For example, management also provides data based on product category. While the company is certainly best known for its soup brand, soup products as a whole accounted for just 30.3% of the company’s revenue last year. The snacks category was significantly larger at 47.1% of revenue. Other simple meals accounted for 13.4% of company revenue, while beverages accounted for 9.2%. It is also true that the company is a global player. However, it is still very US-centric. I say this because in 2021, the company generated 93.8% of its revenue in its home market.

Historical financial data

Author – SEC EDGAR Data

Over the past several years, the management team at Campbell Soup Company has done well to grow the company’s kill line. Sales fell from $5.84 billion in 2017 to $8.48 billion last year. It should be noted, of course, that not all years have been a victory for the company. Sales in 2020 were actually higher than in 2021, reaching $8.69 billion. It’s worth digging to understand why the company’s sales have historically fluctuated in recent years. A big contributor to the decline in revenue in 2021 versus 2020 appears to have been the lack of a 53rd week that was there for fiscal 2020. That hit the business about 2%, which accounts for almost all of the decline the company has experienced during this period.

Apart from that, however, the company has undergone a number of changes in recent years. In the last quarter of its 2021 fiscal year, for example, the company completed the sale of its Plum baby food and snacks business. In 2019, she sold several businesses, including her chilled soup business in the United States, her Garden Fresh Gourmet business, and her Bolthouse Farms business. Of course, the company also added other properties to its portfolio during this period. In 2018, for example, it acquired both Pacific Foods of Oregon and Snyder’s-Lance. Due to the amount of acquisition and divestiture activity the company engages in on a regular basis, investors would be wise to view the company as one dedicated to constantly refreshing its brand by recycling product lines that do not make more sense to her and bringing in the ones she feels could be very complimentary or contribute to faster growth.

In the end, things were much more volatile. Net income has been all over the map in recent years, with no clear trend. The metric went from a low of $211 million to a high of $1.63 billion. Given this extreme volatility and lack of trend, I think there are other profitability metrics that deserve more attention when it comes to placing a value on the company. One of them would be EBITDA. While it has also been volatile, dropping between 2017 and 2019, the overall trend has been positive, with the metric dropping from $1.70 billion in 2017 to $1.89 billion last year. Operating cash flow has been quite volatile. But if you take into account changes in working capital, it would have increased in four of the last five years, eventually going from $1.29 billion in 2017 to $1.32 billion last year.

Historical financial data

Author – SEC EDGAR Data

As far as the current financial year is concerned, things have been a bit more complicated. Revenue for the first nine months of its 2022 fiscal year totaled $6.58 billion. This is a slight drop from the 6.60 billion dollars reached at the same time a year earlier. Net income also fell from $714 million to $661 million. Operating cash flow increased from $881 million to $1.10 billion. But if we adjust for changes in working capital, it would have gone from $1.06 billion to $992 million, while EBITDA went from $1.41 billion to $1.26 billion.

Looking to full year 2022, management expects revenue to be flat or increase 1%. This should be largely driven by organic revenue up 1-2%. However, inflationary pressures will drive EBITDA down 1.5% to 4.5% to $1.83 billion mid-term, while earnings per share are expected to be between $2.75 and $2.85, which implies, at the midpoint, a net profit of approximately $841.6. million. No indication was given regarding adjusted operating cash flow. But a rough approximation should give us a reading of around $1.28 billion for the year.

Trading multiples

Author – SEC EDGAR Data

Using these numbers, we can see exactly how the company is being priced right now. On a forward-looking basis, the company trades at a price-earnings multiple of 17.1. That’s up from the 14.4 reading we’re getting based on 2021 results. 11.2 this year. And the EV to EBITDA multiple should drop from 10 to 10.3. To put that into perspective, I decided to compare the company to five similar companies. On a price-earnings basis, these companies range from a low of 18.4 to a high of 46.9. And when it comes to the EV to EBITDA approach, the range is 12.4 to 22. In both cases, Campbell Soup Company was the cheapest of the bunch. Meanwhile, using the price to operating cash flow approach, the range is 9.4 to 31. In this scenario, only one of the five companies was cheaper than our outlook.

Company Prizes / Earnings Price / Operating Cash EV / EBITDA
Campbell Soup Company 17.1 11.2 10.3
JM Smucker Co. (SJM) 22.4 12.4 12.4
Lamb Weston Holdings (LW) 46.9 31.0 22.0
Conagra (CAG) 18.4 13.9 14.0
The Kraft-Heinz Company (KHC) 38.7 9.4 13.9
The Hershey Company (HSY) 27.9 21.1 20.3

Carry

Based on the data provided, Campbell Soup Company seems to me to represent an attractive opportunity for investors at this time. The company is certainly not a star from the point of view of profitability growth. But the general trend of the company has, over the years, been quite solid. Stocks aren’t exactly a bargain at the current price, especially if 2022 estimates hold. But for an iconic brand with a long operating history, they seem affordable. This is especially true when you compare the company to some of its peers. For all of these reasons, I have decided to rate the company as a moderate ‘buy’ at this time, reflecting my belief that its low price will help it outperform the market for the foreseeable future.

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