Campbell Soup Co.'s (CPB) Transformation and Driving Quality Growth Plans are improving the topline through a combination of improved products, attractive packaging, a new retail shelving system, and more effective marketing. Price increases and a line of lower sodium soups helped Campbell accomplish the management's financial goals in the last two fiscal years.
The management continues to optimize the portfolio with the introduction and reformulation of lower sodium soups. However, rising cost inflation and flat sales in the high margin condensed soup business are concerns. A Hold recommendation has been re-established.
Campbell's stock has traded in a wide P/E multiple range of 14 to 31 over the last 15 years. The stock peaked in 1998 at a 31 P/E, a quarter before EPS also peaked. A P/E multiple contraction ensued as the company's condensed soup category sales sagged. Nevertheless, with its strong soup franchise with high but slowly eroding gross margins, Campbell's stock should trade in a P/E multiple range of 17 to 23. The target price of $39.25 is 20 times 12-month trailing EPS.
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