This is a company I have done covered call in the past, primarily for mid-teen to high teen annualized returns. The sales, earnings are pretty steady, doesn’t move much up or down.
The company has changed its name and removed the soup from its name, to reflect they are no longer a soup company but a meals and beverages and a snack company. The array of brands they own is impressive.
Interestingly, the company doesn’t import much and has a modest export to Canada. There are other company specific headwinds, but the stock price has declined 30% from 52.81 and is hitting the first support level and $32.5 is a 10 year support. Current dividend is $1.56 annualized and at $30 the dividend yield will be 5.2%. At today’s price if you do a covered call you can get 10.85% annualized return.
I might wait to see where the bottom settles in to do that, and we may get a mid-teens return opportunity.
These are not going to make you rich, but provide some steady return to your portfolio. I thrown in these covered call’s to balance growth.
Campbells is traditionally located in Camden, NJ. Their watertower across the Delaware River from Philadelphia is painted as a Campbells soup can.
NJ, The Garden State, has ideal conditions for tomatoes. No wonder a soup company is located there. The Rutgers tomato is famous.
John Dorance is the inventor of condensed soups. They are mostly made in Dorance, OH. Now most tomatoes are grown in California, processed to tomato paste and shipped for processing to soup.
I would wonder if they have moved operations to Mexico for lower labor costs and if they will be impacted by tariffs.
Their endless ideas to grow profits have mostly been not very successful. Lots of disappointment to investors. A low margin, extremely competitive business. They dominate the soup aisle in the grocery store. Prego and Pepperidge Farms Goldfish crackers are pluses but competition is intense.
HJ Heinz used to be the main competitor out of Pittsburgh, but now its Kraft Heinz with Warren Buffett as a major investor.
I could be wrong, but they don’t have much exposure to Mexico.
It is their achilles heel. Soup as a category is not going anywhere, if not steadily declining. The company’s’ future is with snacks, canned food, pasta sauce, etc. Separately don’t underestimate their Rao’s (pasta sauce), Kettle (chips) brands. The collection of brands is impressive.
They have 30%+ gross margin and 12% ~ 14% operating margin. Unlike technology, they cannot be dislodged overnight. They have $9 B in debt and their interest cost has doubled from Oct-23 quarter. They also have a steady marketing and advertising expense. They can squeeze some to meet their numbers, but long-term it will hurt them.
If it gets to $30, I would be a buyer for the long-term. Where any sign of growth will immediately push the stock to mid 40’s to 50. T
Especially with prices being as they are I know people who bring canned soup for lunch and eat it at their desk. With people returning to work those numbers should be improving.
I have always objected to $3 for a can of soup. I can get a can of veggies from Aldi for $0.63. Add some broth and its soup. So $1 seems reasonable for canned soup. And Con Agra does that with their Healthy Choice brand when on sale.
I think Campbells keeps the price of their soup in the soup aisle high to keep from cannibalizing their condensed soup lines which are their traditional product. Read the label and condensed soup turns out to be mostly cornstarch thickener in broth made from boullion cubes. Not much to it. Can and label cost more than the product.
