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We are impressed with Campbell’s consistent positive earnings surprise trend, strong revenue growth and impressive management guidance. However, we remain slightly cautious on the company’s growth prospect due to rising commodity costs.
Looking at its earnings surprise history, Campbell has beaten the Zacks Consensus Estimates 16 times in the past 19 quarters. The average positive surprise in the trailing quarters comes to 5.9%.
The most recently reported earnings of 70 cents per share for second quarter fiscal 2013, handily surpassing the Zacks Consensus Estimate of 66 cents, resulted in a surprise of 6.1%. Moreover, quarterly earnings surged 9% year over year, primarily driven by a 10.5% rise in the top line.
Looking ahead, the Zacks Rank #2 (Buy) company continues to anticipate sales growth in the range of 10%–12% and earnings between $2.51 and $2.57 per share in fiscal 2013, reflecting an increase of 3%–5% from 2012 level. The current Zacks Consensus Estimate stands at $2.55 per share.
Apart from strong fourth-quarter results, Campbell’s growth story looks compelling. We believe Campbell’s prudent investment and strategic initiatives toward product innovation and brand building will increase its customer base and profitability.
On the flip side, we remain cautious on the stock due to rising commodity prices, which may undermine the company’s future performance. The raw and packaging materials used in the company’s business include tomato paste, grains, beef, poultry, vegetables, steel, glass, paper and resin. Many of these materials are subject to price fluctuations.
Further, Campbell operates in a competitive environment and strives to maintain its market share, actively competing with numerous manufacturers and marketers of high-quality, branded convenience food products. The company primarily competes on the basis of brand recognition, quality, taste and price. Failure to offer high-quality differentiated products at a competitive price may hamper Campbell’s market share, and thereby it’s top and bottom-line performances.
Other Stocks Worth Considering
Other stocks worth considering in the food industry are Chiquita Brands International Inc. (CQB - Snapshot Report), Flowers Foods, Inc. (FLO - Snapshot Report) and J&J Snack Foods Corp. (JJSF - Snapshot Report). All these companies hold Rank #1 (Strong Buy).
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