Argus Lifts Campbell Soup To Buy, Sets $65 Price Target

• Campbell Soup Company CPB shares have appreciated 18.68 percent year to date to almost touch their 52 week high on November 27.
• Argus’ John Staszak has upgraded the rating on the company from Hold to Buy, with a price taret of $65.
• Staszak believes that the company’s ability to raise prices, along with its cost saving initiatives, warrant a higher stock valuation.

Analyst John Staszak believes that following the recent acquisitions of Bolthouse Farms, Plum Organics and Garden Fresh Gourmet, “Campbell Soup is shifting its product mix toward faster-growing areas of the packaged foods market.”

Also, management is currently focused on reducing costs and investing the savings in the company’s core brands. Campbell Soup has also undertaken supply chain improvements, including the shutting down of four manufacturing plants and a 4 percent reduction in headcount.

The company reported its FY1Q16 net sales in line with the consensus but below the year ago levels, driven by FX headwinds and flat organic sales.

Lower promotional spending and a 1 percent price increase benefited organic sales during the quarter, although revenue was hurt by a 2 percent decline in volume. Adjusted EPS increased 22 percent, driven by better than anticipated gross margins and operating income, as well as lower marketing and selling expenses.

“Higher prices, productivity gains, and reduced promotional spending benefited the gross margin,” Staszak said.

The EPS estimates for FY16 and FY17 have been raised from $2.54 to $2.84 and from $2.72 to $3.04, respectively.