Erin Lash: Over the past 18 months, Campbell Soup shares have faltered, falling nearly 30% versus a 25% appreciation in the S&P 500 Index, leaving shares attractively valued relative to other packaged food operators.
In our view, the firm's inflated valuation a year and a half ago reflected sentiment that its profit improvement trajectory would continue unabated. However, in our view, we've long thought the combination of input cost inflation, the need to up the ante on brand reinvestments to support the intangible asset source of its wide moat, as well as the lower profit profile of its expanding natural and organic business all stood to eat into its profit gains.
While Campbell is not immune to the number of headwinds plaguing firms throughout the consumer products realm, we don't view these headwinds as insurmountable nor do we think improvement is anchored within its core soup franchise. When combined with its prudent capital allocation and 3% dividend yield, we think long-term investors would be wise to stock up on this wide moat name.