In this article, let's take a look at Campbell Soup Company (CPB, Financial), a $14.80 billion market cap company, which manufactures and markets convenience food products.
Major Shareholder
The form 13-F is a quarterly report of equity holdings filed by institutional investment managers with at least $100 million in equity assets under management, as required by the United States Securities and Exchange Commission (SEC). Mario Gabelli (Trades, Portfolio) is the founder, chairman, and CEO of Gabelli Asset Management Company Investors (GAMCO Investors) a $19 billion dollar global investment firm headquartered in Rye, New York. The investor reported decreasing his stake in the company in Q1, according to its latest filling, while the stock has surged 5.8%. With the transaction, Gabelliās position decreased by 6% to 835,543 shares, valued at $38.89 million.
Some Risks
There are a few reasons that could justify Mr. GabelliĀ“s bearish sentiment. First, we could mention that assets are growing faster than revenues at a rate of 6.4% a year versus 4.1% over the past 5 years. This has a negative impact on efficiency and it is a negative sign. Further, margins have been in decline: gross margin has been in long term decline, the average rate of decline per year is -3%; and operating margin has been in 5-year decline, the average rate of decline per year is -3.5%. Moreover, the company is facing higher costs for inputs (carrots, dairy, chocolate, meats, and aluminum cans) as well as higher logistic and manufacturing costs.
New High
However, yesterday the company reached a new 52-week high of $49.16 due to its acquisition of leading refrigerated salsa maker, Garden Fresh Gourmet, following the past acquisitions of Bolthouse Farms and Plum Organics. The transaction would allow the Campbell Fresh division, or C Fresh division to expand in the deli section.
In terms of valuation, the stock sells at a trailing P/E of 19.68x, trading at a discount compared to an average of 21.0x for the industry. To use another metric, its price-to-sales ratio of 1.81x is above the industry average of 0.88x and is close to 5-year high of 1.91. Further, its price-to-book ratio of 9.3 is above the industry median of 1.58x.
Dividends and Insider Trading
The past days, the Board of Directors has declared a regular quarterly dividend of $0.312 per share, yielding 2.62%. Although the Director Paul R. Charron sold shares on June 9, he still owns 22,135 shares, valued at $1.05 million. The importance of insider trading is that it indicates that the people with āinsideā knowledge have them for a simple reason; they think the price will rise in the future.
Final Comment
I think this company could become an important player in the industry, while the new acquisition is going to complement its existing presence with Bolthouse Farms. Even though operations in Russia and China suffered, international markets can contribute to growth, such as in Australia.
The PE relative valuation makes me feel bullish on this stock and if an investor had invested $10,000 five years ago, today you could have $15,493, which represents a 9.2% compound annual growth rate (CAGR).
Pioneer Investments has upped its stake by 65.5% during Q1 to 2,502,123 shares.
Disclosure: Omar Venerio holds no position in any stocks mentioned.
