CPB
🛡️ Campbell Soup shows resilience to tariffs due to its local U.S. production and consumption model for essential food products.
📉 Despite recent volume declines from price hikes, early signs of volume recovery (1% growth in Q3/Q4 2024) alongside price increases suggest potential stabilization.
💰 The stock trades near 10-year valuation lows (12x P/E vs. 16x average) and offers a 4% dividend yield, but requires sustained growth to justify multiple expansion.
@Artedeinvertir:
“Let’s talk about the first company that seemed interesting, which was Campbell Soup. Eh, it’s in the portfolio of two of the best investors, according to Data Roma, and its shares have dropped quite a bit. They were at $50 and had fallen back to $38. However, in recent months, if you look at the chart here, the tariff crisis started in February, and they are more or less at the same level, even having risen a bit previously during the last five or six months. As they were safer sectors, people had sold them, that’s why they had dropped in the stock market, and for that reason, people had taken that money to invest in high-growth stocks, technology, and others. And that’s why these businesses, which are more stable and predictable, were at a low valuation and haven’t suffered, apart from the fact that the whole issue of tariffs and such shouldn’t affect them. Campbell is a holding company of food products, mainly sauces of all kinds, you can see here, but it has also been buying snack companies, beverages. You even have juice here, the famous V8, and many brands that, well, if you are more in America or Latin America, perhaps they are less known in Europe. It has a total of 16 brands, which are number one or number two within their segments. And in the end, this class of products, well, like food, drink, everything related to housing, are basic human needs whose consumption shouldn’t be cut, even if there is a crisis. And they are also products that are manufactured locally in the United States and consumed locally in the United States, so the tariff issue has null impact. And besides, if Trump finally lowers taxes for all these local companies, which is what he promised, we’ll see if he does it, well, they should benefit. They are mature businesses, as you can see here, growing 3% per year in recent years, profits by six, because, well, as the name suggests, they are stable consumer companies, they don’t have high growth, but they do provide more predictable returns. One of the reasons people were negative in recent… eh… let’s say… ah… I’ll put the other marker here, okay? So you can see better what I want to point out. Em, in this graph, you can see Campbell’s sales, both in terms of volume and price. Here we see that since 2022, sales volumes had dropped, however, the price had risen a lot due to inflation. This indicates that the American consumer is a bit squeezed, okay? They lost 2% in volume, which is not the end of the world, but people think these companies have some kind of problem, and the only thing that happened is that the price has risen so much because the average price has risen almost 10% per year during the last three or four years, meaning increases of almost 30 or 40% accumulate for many consumer products, and the company, thanks to that, has grown, and many people think that’s why it has problems. What happens is that, well, sooner or later it should be resolved or shouldn’t get worse. In fact, if we look at a more interesting study, both in the third quarter and the fourth quarter of 2024, the first glimpse of volume growth has finally been seen, not much, but 1%, which is very interesting while they have been able to raise prices. This is very positive because if you can raise the price for the consumer and also sell more units of these, eh, eh, jars or cans of sauce, well, even better. So, it indicates a certain strength or a change in sentiment about the company. You know that in these consumer products or companies, an easy way to calculate the profitability of the business is how much it will grow, what percentage the profits will grow in the future, and add the dividend yield. It’s an easy valuation model for those of you with a lot of experience that can help you with all these stable consumer companies, in a Procter & Gamble, in a Nestle, in this company. And what they project is to grow 2 or 3% in sales, the profit to grow four or six because they have a cost savings program, so the profit grows a bit faster, and earnings per share even faster, between 7 and 9% is what they project and what they have achieved. In recent years, they achieved 6%, but in a more complicated environment. So, the current dividend yield is 4%. Why does earnings per share grow more? Because the company repurchases shares. As shown here, eh, also if taxes are lowered, it could grow a little more, okay? But we won’t count on that to be conservative. So, if it has earnings per share growth of 6%, even though the company projects 7 to 9%, and the dividend yield currently offered by the company is four, this is curious because this dividend normally grows and is even higher yield than some European bonds. Okay? It’s another currency, they are in euros, but sovereign bonds from, I don’t know, France, Germany offer less yield. So, this has a combined return for the shareholder of 10%, without the valuation multiple, which is the third variable, returning to its historical average, which, as we will see next, is below. If the market says, ‘Hey, well, I’m more optimistic about the company,’ or people suddenly decide to take refuge in this type of business, there may be more demand for the shares. The company in 2018 was highly leveraged, had a lot of financial debt, almost 5.5 times, now it has lowered it to 3.7, which, well, for a stable business is high. If it were a cyclical business, it would be a problem, but its goal is to lower it to three points by this year 2025. What we saw before, those growth forecasts were for the coming years, but for this 2025, sales will grow by 9 to 10% and adjusted profit only 1 to 4% due to the effect of rising interest rates, the weakness of the economy, and so on. The point is that Campbell normally traded at an average of 16 times earnings, and now it’s only at 12 times earnings. In fact, we can see down here that it’s practically at valuation lows not seen in the last 10 years. Therefore, it can be affirmed that in the last 10 years, it has never been so cheap. The last time it was this cheap was in 2018 in terms of valuation. Normally, it used to trade in the range of 18 to 20 times, but for the market to value it at this level, which would offer a revaluation potential of only 50% just by returning to the historical valuation average. But for that to happen, these businesses have to grow. The market needs to see that they grow at least 3%, that they at least keep pace with GDP, because if you grow less than the economy is growing, it indicates some kind of weakness in the business, and that is very important to monitor. Therefore, the current multiple may be a bit more justified, but if there is a slight improvement or it meets the forecasts projected by the company, then that part should be fulfilled.”
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