Campbell Soup and B&G Foods are holding up better than many other consumer staples and packaged-food stocks as investors look ahead to the economy reopening. Yet, only Campbell is a buy, argues Piper Sandler.
Analyst Michael Lavery reiterated an Overweight rating and $57 price target on Monday, following recent meetings with Campbell (ticker: CPB) management, which bolstered his conviction that the company's "strong momentum will continue" into the second half of the year.
Lavery believes the soup category can keep growing at a time when the balance sheet should allow Campbell the flexibility to make a strategic acquisition or buy back more stock. Moreover, he sees a long runway for growth for the company's snack business in the coming years. Input costs are rising, but he notes that the company can offset that pressure with various levers, from improved production to pricing power.
Ultimately, he thinks sales will continue to be elevated compared to pre-pandemic levels.
By contrast, he downgraded B&G Foods (BGS) to Neutral from Overweight, while maintaining a $31 price target. Lavery writes that he finds it difficult to see upside to the stock's current valuation, especially as commodity-price inflation could lead to higher costs in the second half of this year and into 2022.
That said, the company does have some ability to counteract this, like Campbell, via moves like hedging and price increases; even so, he estimates that B&G Foods could face between 15% and 25% earnings per share risk this year—and next—if current commodity prices hold.
Campbell is up 0.9% to $50.26 in recent trading; the shares have risen 4% year to date and 17.1% in the past 12 months. B&G is down 1.9% to $32.44; it has risen 17.1% year to date and 96.1% in the past year. By contrast the Consumer Staples Select Sector SPDR ETF (XLP) is down 1.4% this year after a 26.7% gain in the past 12 months.