Campbell Soup: Hard To Believe Long-Term Growth Targets Can Be Achieved

Investment Action - The company has shifted its rating for Campbell Soup Company (CPB) from sell to neutral, acknowledging an underestimation of CPB's ability to navigate macro conditions, but sees no near-term upside potential [2] Earnings Review - CPB reported 2Q24 earnings with sales of $2.29 billion, missing consensus estimates of $2.3 billion; gross profit was $719 million, below the expected $731 million; EBIT was $329 million, also missing the $331 million estimate; however, net income of $189 million exceeded the consensus estimate of $185 million due to lower interest expenses and a better tax rate [3] Growth Projections - Management's long-term growth target of 2 to 3% is considered overly optimistic, especially given historical organic growth of -0.5% from FY14 to FY19 and negative volume/mix growth in the three years prior to FY19 [3][6] - The expected 3 to 4% growth in Snacks is questioned due to historical performance, with organic growth never reaching the midpoint of this target pre-COVID [4][6] Competitive Landscape - The Snacks industry is facing intensified competition from major players like General Mills, Utz Brands, and Mondelez, making it difficult for CPB to achieve accelerated growth [4][6] - Recent sales trends in the Snacks industry have deteriorated, raising concerns about CPB's ability to capture market share and achieve its growth expectations [6] Margin Outlook - Management's projection of achieving >19% EBT margin by FY27 is scrutinized, particularly the 130 bps contribution from fundamentals, which lacks detailed explanation and historical support [8] Valuation and EPS Growth - CPB's valuation has aligned with peers at 10.5x forward EBITDA, closing a previous 15% valuation gap; without strong evidence supporting growth expectations, a higher market multiple is not anticipated [9] - Current FY26 EPS estimates of $3.41 reflect a 7.5% year-over-year growth, which is not expected to exceed historical averages of 3% growth from FY14 to FY22 [9] Final Recommendation - The recommendation for CPB is a hold rating due to skepticism about achieving long-term growth targets, historical performance, increasing competition, and limited upside potential given its current valuation [10]