Campbell Soup Company (Ticker Symbol:CPB) reported earnings and guidance on Wednesday before the opening bell. The soup giant reported an earnings per share beat of .56 cents per share vs. Wall Street analysts’ expectations of .47 cents per share. The company reported quarterly sales of $2.178 billion vs. Wall Street analysts’ expectations of $2.36 billion. Campbell’s had strong results out of its snack business, which owns the Pepperidge Farm brand. The company has had trouble with its soup business and its move into snacks has helped offset the lackluster sales.
Campbell’s acquired Snyder’s-Lance snack company in early 2018 as a way to help balance out its mediocre sales in its soup business. The company is trying to create growth on its own by reaching out into the “grab and go” market. Synder’s owns brands like Pop Secret popcorn and Diamond Foods, which will help Campbell’s have a stronger presence in the majority of convenience stores. Chief Executive Officer Denise Morrison said, “This acquisition will dramatically transform Campbell’s, shifting our center of gravity and further diversifying our portfolio into the faster growing snacking category.”
Above is the chart for the last three years of Campbell’s Soup Company’s stock. The stock took off to a solid start in 2016, rallying over 30% and trading to an all-time high of $67.89 on July 6, 2016. In the third quarter of 2016, Campbell’s stock began to top, forming a bearish divergence pattern, as indicated on the chart by the purple lines, where the stock makes a higher high in price but the Relative Strength Index makes a lower high. Traders and investors sometimes look at divergences for a possible pause within the current trend which can, at times, lead to a reversal as occurred in Campbell’s case.
Unfortunately for shareholders, the stock took a downturn. Campbell’s stock proceeded to begin a 3-year long downtrend, eventually finding price support just above the $32.50 dollar price level in the second quarter of 2018. It proceeded to then form a Double Bottom reversal pattern. The Double Bottom pattern looks like a “W” and can be used to find a change in trend and a possible momentum reversal. The stock broke out of its Double Bottom and broke through its long term downtrend to the upside in the first quarter of 2019.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 9 analysts offering 12-month price targets, the average price target for Campbell’s stock is $37.35. According to that number, the stock is priced at a premium relative to Wall Street’s analysts and could be considered overvalued around current levels near $43.01.
Campbell’s recently acquired the organic food company, Pacific Food, that will be helping the company produce organic soups. Despite this, Campbell’s will have to continue to offset weaker demand from its soup business with its snacks and beverage businesses. Investors in Campbell Soup Company should look out to their next earnings release on August 30th for fresh news.