Strangely, coronavirus could save the Campbell Soup Company (NYSE: CPB) from oblivion and irrelevance.
Campbell’s claims coronavirus is increasing demand for its products. However, Campbell borrowed $300 million in revolving credit to cover COVID-19 related costs, MarketWatch claims. Moreover, MarketWatch claims Campbell’s has accumulated $1.15 billion worth of commercial paper.
Mr. Market believes that coronavirus is good for Campbell Soup. To explain, Campbell shares were trading at $45.12 on 28 February. Campbell’s share price rose to $53.84 on 17 March 2020; fell to $41.41 on 25 March 2020, and rose to $50.75 on 25 April 2020, and dropped to $50.56 on 29 April 2020.
Is Coronavirus Good for Campbell Soup?
Coronavirus could be good for Campbell Soup because it traps people at home. People stuck at home will be forced to cook their own meals.
Hence, more people will reach for a can of Campbell’s Soup, a carton of Pacific Foods soup, a Swanson frozen dinner, or a jar of Prego pasta sauce. Additionally, people frightened by empty store shelves are more prone to stock up on long-lasting foods such as Campbell’s canned soups.
Additionally, Amazon (NASDAQ: AMZN) and Instacart can easily ship Campbell’s soup to your home. Finally, Campbell’s Soup is a comfort food and more people are seeking comfort in our frightening times.
Hence, Campbell’s could manufacture the perfect product for the Coronavirus age. Interestingly, Mr. Market buys the COVID-19 boosts Campbell thesis.
Does Campbell Soup Make Money?
Campbell Soup (NYSE: CPG) made money before the Coronavirus came to America.
For instance, Campbell reported a $742 million quarterly gross profit on quarterly revenues of $2.162 billion on 31 January 2020. Similarly, Campbell reported a $350 million quarterly operating income and a $1.208 billion quarterly common net income on the same day.
Furthermore, Campbell Soup reported a $481 million operating cash flow, and a $2.099 billion investing cash flow for the quarter ending on 31 January 2020. In contrast, Campbell’s reported a -$3 million negative ending cash flow for the same quarter.
Thus, Campbell’s makes money but struggles to retain cash. Consequently, Campbell reported $58 million in cash and short-term investments on 31 January 2020.
Is Campbell’s Soup Doomed to Debt?
I think Campbell (NYSE: CPG) offers some value despite the lack of cash. Notably Campbell reported $11.654 billion in total assets on 31 January 2020.
However, Campbell’s total assets fell from $13.11 billion on 31 October 2019, and $14.024 billion on 31 January 2019. Thus, Campbell’s has fewer resources at a time when demand for its products is growing.
Consequently, Campbell’s could have to spend and borrow more money to expand its operations. Unfortunately, the increased demand could end fast, leaving Campbell’s with debt it cannot pay off.
However, a U.S. federal government report predicts the coronavirus pandemic could last for over 18 months, Livescience claims. The report forecasts there could be multiple waves of coronavirus over the next year and a half.
Thus, the next 18 months could be good for Campbell Soup, if the government report is correct. Tens of millions of Americans could be trapped at home with a need to prepare their own food for over 18 months.
Will Amazon Save Campbell Soup?
Under those circumstances, the demand for Campbell Soup and Prego could be massive. Plus, delivery services such as Amazon and Instacart are ramping up their operations.
For instance, Amazon is expanding same-day delivery with a network of small fulfillment centers in urban areas, GeekWire claims. To explain, the mini-warehouses could enable Amazon bring items such as Pacific Foods soups or Pepperidge Farm snacks to your home in a few hours.
In consequence, it could easier to order Campbell Soup and Kettle chips from home. Thus, Amazon and competitors such as Kroger (NYSE: KR) are constructing a new delivery infrastructure that can increase the demand for Campbell products.
Campbell needs Amazon’s help because it has experienced two straight quarters of falling revenue growth. In detail, Stock row estimates Campbell’s quarterly revenue growth rate was -0.46% on 31 January 2020 and -0.86% on 31 October 2019.
Only time will tell if Coronavirus and Amazon can reverse that negative revenue growth.
Is Campbell a Good Stock?
I think Campbell Soup (NYSE: CPB) is a poor value investment because it has a low margin of safety. Campbell’s margin of safety is low because it has small amounts of cash.
On the other hand, I consider Campbell a decent dividend stock. Each Campbell share paid a 35₵ dividend on 8 April 2020. In total, Dividend.com credits Campbell Soup with a dividend yield of 2.75%, an annualized payout of $1.40, and a payout ratio of 50.46% on 29 April 2020.
However, Campbell’s dividend has not grown in over a year. Thus, Campbell’s dividend is not keeping up with inflation.
I think Campbell Soup is a poor value investment and a company that could collapse. Thus I advise investors to avoid Campbell Soup. Conversely, those who do not believe me could find Campbell Soup an interesting contrarian investment for the coronavirus age.
Originally published at https://marketmadhouse.com on April 29, 2020.