Campbell's Initiatives Unlikely To Materially Boost Near-Term Sales Outlook; UBS Maintains Sell

Following analyst day at Campbell Soup Company CPB on July 20, UBS said strategic initiatives announced by the company to take the headwinds head on might not materially boost near-term sales outlook.

The company announced four strategic initiatives, including real food, digital e-commerce, fresh/health and international expansion to boost sagging top line growth. UBS also termed the planned launch of "Well Yes" organic soup in January 2017, plant-based milk in 2017 and garden gourmet snacking as steps in right direction.

Despite the company doubling its C-Fresh sales outlook to $2 billion by fiscal year 2020, UBS doesn't see scope for sales improving near term. The firm noted the company trimmed its 2016 ales guidance by 1 percentage point to -1 to -2 percent range, although it left its earnings per share guidance unchanged at $2.93-$3.

Furthermore, going by the early stage fiscal year 2017 guidance, UBS' food products analyst Steven Strycula believes the year will see large scale reinvestment. Accordingly, the analyst expects earnings per share will likely trail the company's 5-7 percent long-term target.

UBS estimates flat organic sales in Am. Simple Meals, 1.5 percent growth in Global Snacks and 5 percent growth in C-Fresh.

Consequently, UBS trimmed its fiscal year fourth quarter organic sales growth estimate to 0.4 percent from 1 percent, while retaining its EBIT margin at 15.2 percent, as cost savings will materialize earlier than anticipated. The earnings per share estimate is trimmed by a penny to $0.49, which is below the current consensus estimate of $0.50 per share.

UBS expects Campbell's EBIT margin expansion to slow in 2017 and 2018, as cost savings plan runs its course. The firm models a modest 2017 earnings per share growth of 4 percent, translating to earnings per share of $3.09 compared to the Street estimate of $3.16. The lowered estimate, according to the firm, poses a risk to the company's valuation of 22 times P/E.

UBS maintained its Sell rating and $52 price target. Campbell's shares were trading down 2.21 percent at $63.15.