Back in February, I pulled out the Heinz (HNZ) Stock Analysis and ended-up with a mild interest for this stock. In fact, HZN does fit in a dividend portfolio if you are looking for stability with a relatively safe dividend payout. Considering its yield, I think it would please many investors. However, I don’t see much growth potential over the years to come and this is why I wasn’t that enthusiastic towards the stock. Today, I’m taking a look at Campbell Soup (NYSE:CPB) to see if the soup could be warmer than the ketchup .
CPB Campbell Soup Stock Description:
Since 1869, Campbell Soup has created a huge company operating in the food industry. CPB is a manufacturer, marketer and distributor of food products. Among their most popular brands, we find Campbell’s (soup, chunky and sauces), V8 juices, Pepperidge Farm (breads and cookies) and Prego Italian sauce. The company is divided into 4 segments of operation: Simple meals (soup and sauce), Beverages (V8), Baking & Snacking (Bread and cookies) and international segment (which regroup simple meals, beverages and baking & snacking for overseas markets). Campbell Soup is the largest soup producer with 60% of the market share. They offer their products across 120 countries.
CPB Campbell Soup Stock Graph
CPB Campbell Soup Ratios and Financial Info:
|Ticker||CPB US Equity|
|Name||Campbell Soup Co|
|Current Dividend Yield||3.67|
|5 year Dividend Growth||8.83|
|1 year Dividend Growth||4.04|
|Sales Growth (1 year)||0.56|
|Sales Growth (5 year)||0.09|
|Return on Equity||79.05|
|Debt to Capital Ratio||0.3|
CPB Campbell Soup Technical Analysis
CPBis trading on a strong uptrend as compared to HZN.
CPB Campbell Soup Upcoming opportunities and dangers:
A similar challenge to Heinz is faced by Campbell. They are both well-established companies with important market shares with their main products (Campbell Soup vs. Heinz Ketchup). CPB strategy is obviously to benefit from its strong position in North America to use its cash flow to grow in emerging markets. While massively investing in China and Russia (which represent more than 50% of worldwide soup consumption), they expect to be profitable by 2014. CPB is actually in a partnership with Coca-Cola (NYSE:KO) to develop these markets. They can also benefit from Wal-Mart (NYSE:WMT) expansion as they are their biggest client.
Campbell’s ability to adapt is currently rewarding them pretty well. They were able to benefit from the health choice shift in the food business by providing healthy soup with less sodium. Their microwave brand is also a big hit among their younger customers. One of CPB’s strategies is actually to extend their existing brands with new healthier products. I think it will do fine over the years as we are definitely not going backwards concerning the healthy food shift.
However, the slow, read non-existent, sales growth is worrying me. If the soup is that strong and investing that much money into emerging markets, how come we don’t see a more steady growth over the years? Part of the answer to this question is linked to CPB’s smaller presence in international markets compared to its competitors. Unfortunately, the company still expects a 0 to 2% growth.
After an unsuccessful bet on internal growth (expanding its brand and creating new products) that served to maintain sales instead of growing them,CPB is now looking for an acquisition. This could be interesting over the long term, especially if CPB is able to acquire some international brands to strengthen its position oversees.
CPB vs HZN
When we look at both CPB and HZN financial ratios, we see a lot of similarities:
- Dividend Yield (3.67% vs. 3.73%)
- Dividend Growth (8.83% over 5 years vs. 6.96%)
- Debt to Capital Ratio (0.30 vs. 0.31)
And then, we see a few differences:
- Sales Growth (0.09% over 5 years vs. 5%)
- Dividend Payout Ratio (47.2% vs. 58.23%)
- Return on Equity (79.05% vs. 39.58%)
- P/E ratio (12.44 vs. 16.46)
I’m under the impression that we are facing 2 stocks in a similar industry with a similar challenges. It’s a good thing that they don’t offer similar products. The difference in the P/E ratio is probably due to HZN sales growth (5% vs. 0.09% for CPB). Nonetheless, it seems to be a very similar play if you have money left in your investment account.
Final Thoughts on CPB Campbell Soup
When I look at both companies, I can’t really say which one will be a winner. In fact, after this analysis, I definitely prefer General Mills (NYSE:GIS). But if you are hesitating between HZN and CPB, I would say that you can’t really go wrong with either one of these. On the other hand, expect healthy dividend payouts with a timid stock appreciation.
If I had a knife to my throat and had to pick one of these, I would go for CPB for 2 reasons:
- Lower P/E ratio (e.g. more room for stock growth)
- Upcoming acquisition possibility (low payout ratio and additional financing has been obtained in order to look for acquisition)
Disclaimer: I do not hold HZN, CPB and GIS.