After 155 years, the Campbell Soup Company (CPB) is changing its name. Going forward, the packaged food company will be known as the “The Campbell’s Company,” with no reference to its famous soups. While the corporate name change has generated considerable media attention, a rebrand alone is unlikely to change Campbell’s fortunes in a meaningful way. I am, therefore, neutral on the stock.
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Wall Street also doesn’t seem impressed that Campbell’s is dropping “soup” from its name as it tries to focus more on its food brands, such as Pepperidge Farm cookies, Prego pasta sauce, V8 juice, and Goldfish crackers. This is likely because the company has major challenges that a corporate rebrand is unlikely to fix.
Campbell’s Historic Rebrand
Looking at Campbell’s fundamentals makes me neutral on the stock, and the name change announced at the company’s Investor Day on Sept. 10 left me underwhelmed. While management did their best to signal that the new name represents a strategic shift at the company, there was little to no data provided to suggest that a corporate transformation is underway.
CPB stock could use a big change. The company’s share price has only risen 7% over the past five years, badly trailing the benchmark S&P 500’s 86% gain over the same period. Clearly, the company wants to be known as more than a maker of soup. CEO Mark Clouse said the name change reflects the “full breadth of the company’s portfolio.” However, that portfolio won’t include the Pop Secret popcorn brand, which Campbell’s divested in August. It will, however, include Sovos Brands and its Rao’s pasta sauce that the company recently acquired.
Campbell’s Flawed Strategy
Another reason I remain neutral on Campbell’s is that the company is undertaking a flawed business strategy. Management is pushing a diversified product line, which makes sense given its number of food brands. However, at the recent Investor Day event, executives appeared to overemphasize the Sovos Brand acquisition. Executives at Campbell’s said that the Rao’s pasta sauce acquired with Sovos Brands is the “best growth story in food.”
Hyperbole aside, Campbell’s needs to improve its financial results and communicate that improvement to analysts and investors. Playing up its new pasta sauce isn’t likely to move the needle on the share price. Sovos Brands reported that its net sales grew 14% year-over-year in the quarter that ended this July. While that growth is respectable, it’s by no means mind-blowing.
Buoyed by the sales expectations of its newly acquired Rao’s pasta sauce, Campbell’s recently revised up its growth targets. Management lifted their annualized net organic sales growth target from 2% previously to 2%-3%. They also raised their annualized earnings per share (EPS) growth target from 6%-8% to 7%-9%. Yet, it’s unclear whether Campbell’s will achieve those new targets or if pasta sauce sales will give the company a needed boost.
Multiple Sell Ratings for Campbell’s
My neutral stance on The Campbell’s Company is supported by the fact that CPB stock appears to be out of favor on Wall Street. The company currently has a consensus Hold rating based on two Buy, nine Hold, and three Sell calls among analysts made over the past three months. The average price target on Campbell’s stock of $49.17 implies 0.67% downside risk from current levels.
It’s worth noting that three analysts reiterated a Sell rating on CPB stock the day after the company announced its corporate rebrand, indicating a lack of confidence in the strategy.
Read more analyst ratings on CPB stock.
Conclusion
Analysts and investors seem unimpressed by the corporate name change at Campbell’s. Clearly, more needs to be done to bolster the company’s performance and its stock. The current ratings and price targets on the stock are also not encouraging. While company executives have been doing their best to promote the recent Sovos Brands acquisition and Rao’s pasta sauce, that alone is unlikely to be the lifeline the company needs. Consequently, I remain neutral on CPB stock and don’t advise buying it.
