Low Beta, High Yield Campbell Soup Company Is Mmm Mmm Good

Key Points

• Campbell Soup Company is a low-beta stock. 
• The company also offers value and yield for income investors. 
• Q1 results are better than expected and come with improved guidance as well. 

Campbell Soup Company (NYSE: CPB) has proven once again to be a resilient company that income investors might want to own. Given the increasing volatility in the average S&P 500 (NYSEARCA: SPY) stock, it may be one that many other investors may want to own as well. The stock comes with a beta of only 0.30X the S&P 500 which is about as low a beta as you could ask for.

Beta, for those wondering and I know you’re out there, is a measure of a stock’s volatility and anything below 1 is better than the average S&P 500 stock. But that’s not the only reason to own it, not by a long shot. 

Campbell’s Soup Is Inflation-Proof 

Campbell’s Soup was not immune to the onset of inflation. It, like many of its competitors, was caught slightly off guard and it took a little bit of time to catch up. Now, at the start of fiscal Q1, the company has not only caught up with the impacts of inflation but showing considerable brand strength and momentum in the business.

The FQ1 revenue of $2.58 billion is not only up 15.2% from last year but it beat the consensus estimate by $0.140 billion or 570 basis points. The strength was driven entirely by pricing which is up 16% YOY and offset by a slight 1% decline in volume. The decline in volume is negligible and much smaller than many of Campell’s competitors in the Consumer Staples (NYSEARCA: XLY) universe. 

The margins were a bit mixed but ultimately flat YOY at the gross and operating levels and on a GAAP and adjusted basis. This left the EBIT and adjusted EBIT up 15% and the $1.02 in adjusted EPS up the same amount. The EPS beat the consensus by $0.15 as well, about 1150 basis points, which is part of what will drive the stock higher. 

What else will drive the stock higher? The guidance. The company upped its previous guidance for organic revenue growth to 7% to 9% from the previous 4% to 6% and the 5.1% expected by the Marketbeat.com consensus figures. The earnings are expected in a range of $2.95 to $3.00 which is also better than the previous guidance and the consensus expectations and there is upside risk in the outlook. With supply chain hiccups easing, as reported by the company, there is a chance margin could widen by the end of the year. 

Campbell Soup Company Is Paying Its Shareholders 

Campbell Soup Company is paying its shareholders and the stage is set for those payments to continue. The valuation is a little high relative to the broad market and even some competitors like Kraft Heinz (NASDAQ: KHC) but there is value as well. Leading names within the staples group trade in a range of 25X to greater than 30X their earnings and they pay much lower dividend yields.

As for Campbell Soup Company, the stock paid about 2.8% prior to the FQ1 release and it was about 50% of the earnings outlook. The company hasn’t raised its dividend in a year or 2 but it does have increases in its outlook. The balance sheet is strong, business and cash flow are strong, and the history shows a tendency to increase it is at least a possibility and there are repurchases to consider as well. 

Campbell Soup Company is working on 2 separate repurchase allotments that amount to more than $500 million in repurchases over the next few quarters. At least $131 million is specifically for anti-dilutive purchases so there is that as well. Turning to the chart, the stock is trading near a multi-year high and could break out on the new guidance.

A move above $55 would be significant but bulls need to see it stay at that level to start adding to their positions. Until then, Campell Soup Company is still trading below a significant resistance point that may keep it range-bound given the general market conditions.