(CPB) Campbell’s Risk-Reward Balances

We are maintaining a long-term ‘Neutral’ recommendation on Campbell Soup Company (CPB) with a target price of $35.00 per share. Moreover, the company has a Zacks #3 Rank, implying a short-term ‘Hold’ rating on the stock.

Campbell Soup is one of the world’s leading manufacturers of convenience food products. Furthermore, a strong portfolio of well-established brands, including Campbell’s, Erasco, Liebig, Pepperidge Farm, V8, Pace, Prego, Swanson, and Arnott’s offer a competitive edge to the company and strengths its well-established position in the market.

Moreover, management has been stimulating growth in the U.S. Soup, Sauces and Beverages business segment through investments in product quality, convenient packaging and introduction of new products. The company has also upgraded its marketing efforts and improved retail execution. These initiatives will facilitate in boosting the company’s top-line growth.

Moreover, Campbell has recently entered into a joint venture with Hong Kong based distributer, Swire Pacific to distribute its product across China. Swire Pacific has a wide distribution network across China. This agreement will help Campbell to enhance its position in China, where 355 billion servings of soups are consumed every year.

Besides, the premium soup segment is underdeveloped in the U.S. with only 6% market share. Hence, management believes that a breakthrough opportunity lies in offering premium aseptically packaged and refrigerated soups. The company has expanded into the premium refrigerated soup business, which is expected to increase production by approximately 50%. Therefore, management expects to generate incremental retail sales from this category.

However, the raw and packaging materials used in the company’s business include tomato paste, grains, beef, poultry, vegetables, steel, glass, paper and resin. Many of these materials are subject to price fluctuations due to a number of factors. Rising commodity prices may undermine the company‚Äôs future performance.

Moreover, due to its exposure to international market, Campbell Soup remains prone to currency fluctuation. The weakening of foreign currencies against the U.S. dollar may require the company to either raise prices or contract profit margins in locations outside the U.S. An increase in menu price may have a direct impact on consumer demand.

Above all, Campbell Soup operates in a highly competitive food industry and experiences worldwide competition in all of its principal products from such well-established rivals as General Mills Inc. (GIS), H. J. Heinz Co. (HNZ) and Sara Lee Corporation (SLE). This may dent the company’s future performance.

CAMPBELL SOUP (CPB): Free Stock Analysis Report

GENL MILLS (GIS): Free Stock Analysis Report

HEINZ (HJ) CO (HNZ): Free Stock Analysis Report

SARA LEE (SLE): Free Stock Analysis Report

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