Campbell Soup Co Stock Shows Every Sign Of Being Fairly Valued
- By GF Value
The stock of Campbell Soup Co (NYSE:CPB, 30-year Financials) shows every sign of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $50.87 per share and the market cap of $15.4 billion, Campbell Soup Co stock is estimated to be fairly valued. GF Value for Campbell Soup Co is shown in the chart below.
Because Campbell Soup Co is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 14.6% over the past three years and is estimated to grow 0.30% annually over the next three to five years.
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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Campbell Soup Co has a cash-to-debt ratio of 0.16, which is worse than 74% of the companies in the industry of Consumer Packaged Goods. The overall financial strength of Campbell Soup Co is 4 out of 10, which indicates that the financial strength of Campbell Soup Co is poor. This is the debt and cash of Campbell Soup Co over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Campbell Soup Co has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $9 billion and earnings of $2.65 a share. Its operating margin of 15.42% better than 85% of the companies in the industry of Consumer Packaged Goods. Overall, GuruFocus ranks Campbell Soup Co's profitability as fair. This is the revenue and net income of Campbell Soup Co over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Campbell Soup Co's 3-year average revenue growth rate is better than 84% of the companies in the industry of Consumer Packaged Goods%. Campbell Soup Co's 3-year average EBITDA growth rate is -6%, which ranks worse than 70% of the companies in the industry of Consumer Packaged Goods.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Campbell Soup Co's return on invested capital is 9.22, and its cost of capital is 4.58. The historical ROIC vs WACC comparison of Campbell Soup Co is shown below:
In summary, The stock of Campbell Soup Co (NYSE:CPB, 30-year Financials) is believed to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 70% of the companies in the industry of Consumer Packaged Goods. To learn more about Campbell Soup Co stock, you can check out its 30-year Financials here. To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener. This article first appeared on GuruFocus.
