Campbell Soup stocks, high yield and right price to buy?

Campbell’s Soup Company New York Stock Exchange: CPB last year it fell out of favor due to a difficult situation compared to the previous year, and declining sentiment led the market to lower prices. However, the bottom has arrived for this stock and higher prices are on the way. Second quarter results were not strong but were enough to catalyze the market; shares have risen significantly since the release and indicate strengthening sentiment due to improving profitability, capital returns and growing shareholding. Trading at just 14 times earnings and yielding nearly 3.5%, CPB shares represent a solid investment in consumer staples for income investors this year.

Campbell’s soup outperforms; Provides cautious guidance

Campbell Soup Company did not have a strong quarter. However, the details are favorable because they show market normalization, improved profitability and precede a return to growth that will occur in the second half. The $2.46 billion in net revenue fell 0.8% from last year due to a 1% decline in organic business, but beat consensus and the contraction narrowed.

The outperformance is slight but present and exacerbated by the margin, which represents the most positive aspect of the relationship. Furthermore, the 0.8% contraction represents a small disadvantage compared to the 13% growth recorded last year. On a two-year basis, sales increased by 13%. Segmentally, Meals & Beverages decreased 2%, with Snacks sales flat or up 1% when adjusted for the divestiture of Emerald Nuts.

The margin is where the results shine. The company expanded its gross margin by 110 GAAP and 70 adjusted basis points based on cost improvements, reduced transportation expenses and cost-cutting initiatives. The net result is a 1% increase in EBIT and flat adjusted EPS. Adjusted EPS of $0.80 matches last year’s earnings, helped by strength in margins and share repurchases that are expected to continue into 2024. Repurchases are not robust, but remaining authorization includes amounts for fighting dilution and value creation amounting to nearly 3% of post-release market capitalization.

Campbell Soup is on track to create shareholder value

Campbell Soup is not expected to thrive this year, but forecasts call for growth of up to 1.5% and are conservative. The company is poised to close its acquisition of Sovos Brands this quarter, adding 13% of annualized revenue growth in one fell swoop, while opening the door to further margin improvement and long-term growth opportunities. Additionally, the company struck a cautious tone, saying there is a possible hike in guidance should the consumer recovery accelerate in the second half.

The bottom line is that cash flow is solid and supports a healthy capital return program, balance sheet improvement and equity capital. Capital returns include the 3.45% dividend yield and a 0.66% reduction in the number of shares year-over-year. Balance sheet highlights include an increase in assets and a 7% improvement in equity.

Analyst sentiment strengthens ahead of CPB release

Analysts still disagree with the prospect of a CPB turnaround, but sentiment is strengthening. Analysts released two major reports days before the release, including an updated price target with a price above consensus and a Buy Initiated whose target is also above consensus. The two targets imply a 10% upside for this market, enough to take it to a one-year high, and further revisions could come now that the results are in.

Institutional activity is in line with the idea of ​​a price floor for this market. Institutions have purchased CPB shares on the balance sheet for five consecutive quarters and increased their holdings to more than 50%. Their business spiked in the first quarter and was on track to hit a multi-year high before the release and may accelerate now that the guidance has arrived.

Moving on to the chart, support is solid at $40.75, so no new lows are expected. A move to that level would be an adequate entry point, but it may not come anytime soon. Assuming the market can sustain support above the 150 and 30 day EMAs, it should continue to move higher within its trading range, with the possibility of reaching new highs later this year.

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