Morningstar

Headwinds Challenge Campbell Soup

Commodity cost inflation, the need for brand reinvestment, and a shifting business mix mute the wide-moat firm's margin potential.

Securities In This Article
Campbell Soup Co
(CPB)

Campbell remains a valued partner for retailers, in our opinion, given its position as a leading packaged food firm with vast resources, supporting the intangible asset source of its wide moat. But we think its competitive position is eroding as center-of-the-store grocery categories (like soup, which the firm dominates with nearly 60% share) have been losing out as consumers shop the perimeter of the store in search of healthier fare. Even though we think its focus on more impactful innovation (instead of its prior strategy that centered on bringing an abundance of new fare to market) should enable Campbell to increase sales, we don't expect top-line gains will reach the historical mid-single-digit rate; we forecast low-single-digit growth longer term.

We intend to review our near-term assumptions, but we don't foresee a major change to our $50 fair value estimate beyond the time value of money. Despite their mid-single-digit decline, the shares still trade north of our valuation, and we suggest investors await a more attractive entry point.

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About the Author

Erin Lash, CFA

Sector Director
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Erin Lash, CFA, is a sector director, AM Consumer, for Morningstar*. In addition to leading the sector team, she covers packaged food and household and personal care companies. Beyond managing a team of nine analysts and associates covering an array of consumer firms, Lash also conducts fundamental analysis of 13 multi-billion-dollar market capitalization firms in the packaged food and household and personal care space.

Before joining Morningstar in 2006, Lash spent four years as an investment analyst covering retail, transportation, and technology firms for State Farm Insurance. In this capacity, Lash analyzed financial statements, business strategy, and fundamentals of owned companies and potential investments, presenting her recommendations based on this analysis to State Farm portfolio managers for ownership consideration.

Lash holds a bachelor’s degree in finance from Bradley University’s Foster College of Business. She also holds a master’s degree in business administration, with concentrations in accounting and finance, from the University of Chicago Booth School of Business. Lash has completed the Chartered Financial Analyst® designation. She ranked second in the food and tobacco industry in The Wall Street Journal’s annual “Best on the Street” analysts survey in 2013, the last year the survey was conducted.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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