Food Processing Stocks

Campbell Soup Company Valuation – September 2017 $CPB

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Undervalued Stocks for the Enterprising Investor – August 2017.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Campbell Soup Company (CPB) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Campbell Soup Company is a food company, which manufactures and markets food products. The Company’s segments include Americas Simple Meals and Beverages; Global Biscuits and Snacks, and Campbell Fresh. The Americas Simple Meals and Beverages segment includes the retail and food service channel businesses. The segment includes the products, such as Campbell’s condensed and ready-to-serve soups; Swanson broth and stocks; Prego pasta sauces; Pace Mexican sauces; Campbell’s gravies, pasta, beans and dinner sauces; Plum food and snacks; V8 juices and beverages, and Campbell’s tomato juice. The Global Biscuits and Snacks segment includes Pepperidge Farm cookies, crackers, bakery and frozen products; Arnott’s biscuits, and Kelsen cookies. The Campbell Fresh segment includes Bolthouse Farms fresh carrots, carrot ingredients, refrigerated beverages and refrigerated salad dressings; Garden Fresh Gourmet salsa, hummus, dips and tortilla chips, and the United States refrigerated soup business.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CPB – September 2017

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $14,854,624,440 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 0.79 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 15.24% Fail
6. Moderate PEmg Ratio PEmg < 20 17.89 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 8.88 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 0.79 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 -5.05 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

EPSmg $2.68
MG Growth Estimate 2.76%
MG Value $37.55
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $38.85
MG Value based on 0% Growth $22.77
Market Implied Growth Rate 4.69%
Current Price $47.92
% of Intrinsic Value 127.62%

Campbell Soup Company does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the  low current ratio, insufficient earnings growth over the last ten years, and the high PB ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.26 in 2014 to an estimated $2.68 for 2018.  This level of demonstrated earnings growth does not support the market’s implied estimate of 4.69% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Campbell Soup Company revealed the company was trading above its Graham Number of $19.89.  The company pays a dividend of $1.4 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today.  Its PEmg (price over earnings per share – ModernGraham) was 17.89, which was below the industry average of 34.94, which by some methods of valuation makes it one of the most undervalued stocks in its industry.  Finally, the company was trading above its Net Current Asset Value (NCAV) of $-13.71.

Campbell Soup Company scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$13.71
Graham Number $19.89
PEmg 17.89
Current Ratio 0.79
PB Ratio 8.88
Current Dividend $1.40
Dividend Yield 2.92%
Number of Consecutive Years of Dividend Growth 1

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 7/1/2017
Total Current Assets $1,900,000,000
Total Current Liabilities $2,395,000,000
Long-Term Debt $2,499,000,000
Total Assets $7,726,000,000
Intangible Assets $3,233,000,000
Total Liabilities $6,081,000,000
Shares Outstanding (Diluted Average) 305,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.24
Jul2017 $2.89
Jul2016 $1.81
Jul2015 $2.13
Jul2014 $2.74
Jul2013 $1.44
Jul2012 $2.41
Jul2011 $2.42
Jul2010 $2.42
Jul2009 $2.05
Jul2008 $3.03
Jul2007 $2.16
Jul2006 $1.85
Jul2005 $1.71
Jul2004 $1.57
Jul2003 $1.45
Jul2002 $1.28
Jul2001 $1.55
Jul2000 $1.65
Jul1999 $1.63
Jul1998 $1.44

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.68
Jul2017 $2.33
Jul2016 $2.07
Jul2015 $2.21
Jul2014 $2.26
Jul2013 $2.07
Jul2012 $2.41
Jul2011 $2.41
Jul2010 $2.37
Jul2009 $2.28
Jul2008 $2.29
Jul2007 $1.86
Jul2006 $1.67
Jul2005 $1.55
Jul2004 $1.48
Jul2003 $1.46
Jul2002 $1.48

Recommended Reading:

Other ModernGraham posts about the company

5 Speculative and Overvalued Companies to Avoid – February 2015
58 Companies in the Spotlight This Week – 1/31/15
Campbell Soup Company Annual Valuation – 2015 $CPB
14 Companies in the Spotlight This Week – 1/18/14
ModernGraham Valuation: Campbell Soup Co. (CPB)

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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