High-Yield Deep-Value Campbell Soup Company Dips To Support
Campbells Soup Company (NYSE: CPB) is among the more attractive consumer discretionary stocks and its shares just went on sale. The stock is trading at only 15X its earnings while yielding over 3.5% with earnings improvement and dividend growth in the forecast. The key takeaway from the report is that the darkest times are behind us and them. The company reports easing within the supply chain and improvement in labor availability that both point to an acceleration of business and the economy. In our view, Campbell’s Soup Company isn’t going to deliver massive capital gains in regards to share prices but it is one safe dividend stock and a steal at these prices.
Campbells Soup Company Bottoms On Mixed Results, Optimistic Guidance
Shares of Campbells Soup Company fell hard the day before earnings were released but appear to have bottomed already. The move was due to fear the company would not meet its targets but those fears were allayed. While the revenue fell short of the consensus by a small 180 basis points margin gains offset the weakness and delivered better than expected earnings. The revenue of $2.21 billion is down 3.1% from last year on a 2% decrease in organic volume and not totally unexpected given last year’s strong comp. On a two-year basis, revenue is up 2% topline and 3% organic with consumption up 1% and 9%.
Moving down to the margin, the gross margin contracted by 410 basis points, adjusted by 320, but the contraction was far less than expected due to pricing actions that will continue to have an impact into the end of the year. The strength was aided by a reduction in SG&A expenses that helped deliver GAAP EPS of $0.70, adjusted $0.69, and beat the Marketbeat.com consensus by a penny.
The biggest news, however, lay in the guidance which was reaffirmed and calls for revenue in the range of down 2% to flat for the year. The guidance is also assuming margin improvements as conditions improve and we see upside risk in the outlook. The company is already reporting some improvements which we see driving momentum later in the year. We will not be surprised to see Campbell Soup Company exceed or raise the guidance.
"As expected, our second quarter was challenging as we lapped a difficult comparison and navigated labor and supply constraints, made even tougher by the Omicron surge. However, heading into the second half of the fiscal year, we are seeing labor availability and service levels improve, better mitigation of inflation with pricing, and strong levels of demand all underpinning our confidence in our delivery of full-year guidance,” said Mark Clouse, Campbell’s President and CEO of Campbell Soup Company in the press release.
The Technical Outlook: Rangebound Campbells Soup Company Confirms Support
Price action in Campbells Soup Company is rangebound between $40 and $46 but now confirming support at a higher level within the range. Support appears to be strong at the $43 level which is coincident with the midpoint of the range. Assuming price action can maintain the upper side of this level we would expect to see ranging continue but within the new $43 to $46 range. If results begin to show improvement with the next earnings release, or if there are indications of improving conditions within the data or other reports, a move up and out of the range is possible.
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