Campbell Soup Company (CPB) Has an Upside in 2013

As I mentioned already, Campbell Soup trades at the very low end of its historical valuation (see below).  Currently trading for right around 15 times earnings, I believe Campbell Soup should trade at a little higher of a valuation due to its growth potential and shareholder-friendly nature.  Campbell Soup is projected to earn $2.54 per share this year, and $2.69 and $2.85 in 2014 and 2015, respectively, for 6% annual growth.  I believe these estimates are very conservative, as I think the Bolthouse Farms acquisition will have more of a positive impact than analysts believe.  Bolthouse’s products are generally health-food oriented, and that is where the American diet is trending towards.

For comparison’s sake, I’d like to look at another diversified food company, General Mills, Inc. (NYSE:GIS) which trades at a slightly higher P/E of 15.6, however with a slightly higher 7.2% forward growth rate.  The well-known maker of breakfast cereals also produces a diverse line of ready-to-eat food products.  General Mills also holds slightly more debt than Campbell Soup at $7 billion (25.4% of the market cap) as opposed to $2.8 billion for Campbell Soup (23.7%).  These two companies are very similar when you compare the numbers, but Campbell’s just comes out a little bit ahead.

Using the data in the chart above, I calculated a 10-year historical average P/E of 16.35 times earnings, indicating that Campbell Soup is trading at a slight discount with no change in the fundamentals over the past few years.  Using the earnings projections mentioned above, I believe this stock should be at $41.53 in a year and $43.98, based on the company’s historical valuation.  As long as all goes well when the company reports, these targets should be easily attainable in this improving economic climate.

The article This Undervalued Food Company Has an Upside in 2013 originally appeared on Fool.com and is written by Matthew Frankel.

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