With a daily gain of 1.71%, a 3-month loss of 18.62%, and an Earnings Per Share (EPS) (EPS) of 2.86, Campbell Soup Co (CPB, Financial) presents an intriguing investment case. The question arises: Is the stock modestly undervalued? This article provides a comprehensive valuation analysis of Campbell Soup Co. Read on to discover its intrinsic value and future prospects.
Company Introduction
Established around 150 years ago, Campbell Soup Co is a leading manufacturer and marketer of branded convenience food products, including well-known brands like Campbell's, Pace, Prego, Swanson, V8, and Pepperidge Farm. The firm's market cap stands at $12.40 billion, with its stock trading at $41.59 per share, notably below its GF Value of $51.8. This initial comparison suggests that Campbell Soup Co's stock might be modestly undervalued. Let's delve deeper into the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor reflecting the company's past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is likely overvalued, indicating poor future returns. Conversely, if it is significantly below the GF Value Line, the stock may be undervalued, suggesting high future returns.
For Campbell Soup Co, the GF Value estimates the stock's fair value at $51.8, significantly higher than the current price of $41.59. This suggests that Campbell Soup Co's stock is modestly undervalued, and its long-term return is likely to be higher than its business growth.
Financial Strength Analysis
Investing in companies with poor financial strength can lead to high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before purchasing shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Campbell Soup Co has a cash-to-debt ratio of 0.04, ranking worse than 89.23% of companies in the Consumer Packaged Goods industry. Its overall financial strength is rated 5 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies typically carries less risk. Campbell Soup Co has been profitable for 10 out of the past 10 years, with an operating margin of 14.2%, better than 83.69% of companies in the Consumer Packaged Goods industry. Its profitability is considered strong. However, its growth is a mixed bag. The 3-year average annual revenue growth rate is 2.8%, ranking worse than 63.68% of companies in the industry, while the 3-year average EBITDA growth rate is 7%, ranking better than 51.82% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted average cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the average rate a company is expected to pay to finance its assets. Ideally, ROIC should be higher than WACC. For Campbell Soup Co, the ROIC is 9.24, and the WACC is 4.29, indicating a healthy profitability.
Conclusion
In summary, Campbell Soup Co's stock appears to be modestly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 51.82% of companies in the Consumer Packaged Goods industry. To learn more about Campbell Soup Co's stock, check out its 30-Year Financials here.
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