Campbell Soup Rallies Then Sells Off After Earnings

Campbell Soup

rallied strongly early on Tuesday, trading up nearly 9% in premarket trading. The company reported earnings that exceeded analysts expectations, as earnings per share came in at $0.41, more than the $0.38 expected. Guidance also exceeded expectations, with the company guiding its fiscal year EPS at $2.51-2.57 versus an estimated $2.51. Yet, those who went long the company in the premarket may have been disappointed to see shares trade back to flat (and briefly go negative) during the session. To be fair, Campbell's performance was still better than the overall performance of the S&P500, which dropped about 0.5%. The overall performance of the market may have cut into Campbell, but the reversal was likely caused by comments management made on the earnings call. Campbell made cautious comments, noting that consumers remained reluctant. They also stated that margins would decline somewhat next year. Notably, analysts at Goldman Sachs made a prescient call on the name earlier this month, upgrading the stock from Sell to Buy -- a very significant shift in sentiment. Goldman argued that exposure to the food business would be positive, and thus told investors to buy the stock. Despite shaving off today's gains, that call has worked well, as shares have moved up better than 7 percent this month. Campbell Soup shares have a number of benefits in the current market environment, particularly for investors looking to get more defensive. The company has a very stable business and a strong brand within its operation segment. Furthermore, valuation remains reasonable with shares trading at roughly 14x next year's earnings estimates. This valuation looks even more attractive given that the stock is currently yielding a very healthy 3.30%. From a technical perspective, CPB is also moving in the right direction, with shares recently hitting new 52-week highs after slumping earlier in the year.