A WhiteWave Upgrade, Campbell Soup Downgrade, And Other Food Group Musings

• While WhiteWave Foods Co WWAV shares lost 30 percent in the last six months, shares of Campbell Soup Company CPB gained 11 percent.
• Barclays’ Andrew Lazar upgraded the rating for WhiteWave from Equal-Weight to Overweight, while downgrading Campbell Soup from Equal-Weight to Underweight.
• The changes in ratings are based on recent share price movements, Lazar stated.

Despite mixed fundamental performance, the packaged food group significantly outperformed in 2015. “We believe this step-up in multiple in part reflected the expectation that 3G will significantly raise margins at its acquired entities and then use them as a platform for further industry consolidation -- which has already begun to play out as anticipated,” analyst Andrew Lazar said.

Given the outperformance in 2015 and weaker fundamentals, some investors are concerned about 2016 being a year of underperformance for the group. Lazar commented that 6 the group could continue to perform well, backed by a combination of fundamental and non-fundamental factors, citing gross margin expansion due to input cost favorability, increased cost savings, early signs of category growth improvements and M&A.

WhiteWave

The price target has been reduced from $51 to $45. The upgrade in rating follows the recent pullback in WhiteWave’s shares, which has declined 18 percent in the past 3 months, versus a 1 percent decline for the XLP. The pressure on shares does not seem to be supported by any major change in the company’s growth trajectory, Lazar mentioned.

The analyst considers the current share price level as “an attractive buying opportunity,” particularly in view of “what we believe is visibility to 8%+ organic sales growth next year (which we believe is stronger than many investors may be anticipating).”

Campbell

The price target has been raised from $49 to $50, following the upward revision in the EPS estimate for CY16 from $2.88 to $2.92.

Lazar noted that the downgrade was based mainly on three factors:

1. Relative valuation, following the recent jump in shares
2. Ongoing concerns over top-line growth in the core Americas Simple Meals and Beverages segment
3. Some uncertainty surrounding returns from external growth actions

“To be clear, in the context of a relative ratings system, we simply believe much of the more positive aspects of management’s strategy and stepped up productivity focus are more fully reflected in the valuation,” the Barclays report noted.