by Zach | October 26, 2013 8:00 am
Campbell Soup (CPB) may have a great history of beating the number, but lately estimates have turned south. CPB is a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day.
Just beating the number all the time will not keep a stock from being a Zacks Rank #5 (Strong Sell). The rank is more about the estimate revisions that look forward as opposed to the earnings beats which are historical in nature.
That said, the Bear of the Day does have a two year win streak on its hands. Actually it is a quarter longer than that, as CPB has beat the Zacks Consensus Estimate in each of the last 9 quarters.
Campbell Soup produces branded convenience food products. The company operates in three business segments: Soup and Sauces, Biscuits and Confectionery, and Away From Home. Campbell Soup was founded in 1869 and is headquartered in Camden, New Jersey.
As mentioned earlier, the soup maker has had a great run of earnings beats. Despite all these beats, the stock has not reacted all that positively. In five of the last six earnings, the stock has traded lower in the session following the announcement. That does not leave a good taste in investors’ mouths.
The most recent report saw a big negative surprise on the topline. The company reported revenue that was $107 million less than expected for a 5.85% negative revenue surprise. The marked only the second time in the last seven reports that the top line came in below expectations.
Estimates for CPB have slipped of late, the main reason the Zacks Rank has fallen. The Zacks Consensus Estimate for 2013 stood at $2.76 in July, but fell to $2.67 in August and then down to $2.59 in September. Similarly the 2014 estimate has moved from $2.90 to $2.77 to $2.74 over the same time horizon.
The downward trend in estimate revisions is one of the biggest factors that can cause a stock to become a Zacks Rank #5 (Strong Sell).
The valuation picture for CPB is pretty much where you might expect it to be. A 15x trailing and forward earnings multiple show a slim discount to the industry average, While price to book of 10x is almost three times as high as the industry average. Its price to sales multiple of 1.6x is below that of the 2.2x for the industry average. I like to look at revenue growth, and fiscal 2015 is expected to see 2.3% growth vs a 4.3% growth rate for the rest of the industry. That tells me the market is growing, but CPB may not be adding share as fast as its competitors.
The price and consensus chart really tells the story of what is going on at CPB. The estimates started moving lower a few months ago, and when they did the stock fell from its recent highs. Established companies in more defensive industries tend to trade in line with the earnings estimates, making the rank a great short term indicator for stocks like CPB.
Brian Bolan is a Stock Strategist for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading service that focuses on small cap stocks and
also carries a risk limiting strategy. Subscribers get daily emails along with buy, and sell alerts.
Follow Brian Bolan on twitter at@BBolan1
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