Options Trade – Campbell Soup Company (NYSE:CPB) Calls
Monday, February 23, 2015

**OPTIONS TRADE: Buy the CPB May 2015 45.000 call (CPB150515C00045000) at or under $2.40, good for the day. Place a protective stop loss at $0.95 and a pre-determined sell at $4.00.

by Ian Harvey

February 23, 2015

Introduction

Campbell Soup Company (NYSE: CPB), a manufacturer and marketer of branded convenience food products, will post its fourth-quarter numbers before the market opens on February 25, with analysts forecasting earnings of $0.65 per share. The stock has recently pulled back from its high, but remains 7.6% higher on the year.

Even though CPB has recently pulled back from its high, the stock remains in solid shape, and the recent pullback has created a perfect buying opportunity for this options trade ahead of its earnings report. With the recent pullback, the stock's P/E is currently sitting just above 16, which compares favorably against competitors such as General Mills (GIS), which has a P/E of 22.2. Analysts expect Campbell to continue growing its business, with earnings forecast to grow 8% next year.

Technical Details

Campbell Soup Company has a 52 week low of $41.15 and a 52 week high of $48.31. The stock’s 50-day moving average is $46.37 and its 200-day moving average is $44.27.

The company has a market cap of $14.611 billion and a price-to-earnings ratio of 16.99.

Earnings

Campbell Soup Company last posted its quarterly earnings results on Tuesday, November 25th. The company reported $0.74 EPS for the quarter, beating the Thomson Reuters consensus estimate of $0.72 by $0.02. The company had revenue of $2.26 billion for the quarter, compared to the consensus estimate of $2.22 billion.

During the same quarter in the prior year, the company posted $0.66 earnings per share. The company’s quarterly revenue was up 4.2% on a year-over-year basis. On average, analysts predict that Campbell Soup Company will post $2.40 earnings per share for the current fiscal year.

On Thursday, 12th February, Campbell Soup Company updated its FY15 earnings guidance. The company provided earnings per share guidance of $2.32-2.38 for the period, compared to the Thomson Reuters consensus earnings per share estimate of $2.45, American Banking News.com reports. The company issued revenue guidance of -1 to +1% to ~$8.19-8.35 billion, compared to the consensus revenue estimate of $8.20 billion. Campbell Soup Company also updated its Q2 guidance to $0.65-0.66 EPS.

Moving Forward

Campbell's Soup on Wednesday, last week, announced that its plans to reorganize into three divisions, in addition to what it calls a "major new cost-cutting initiative," will save the company at least $200 million over the next three years.

According to Campbell's, the company is drafting plans to "simplify and streamline its organizational structure," including eliminating "excess layers of management." Taking the first step in this direction, the company announced the appointment of executives who will lead the newly formed segments.

Campbell's, in a statement released on Wednesday, coinciding with company president Denise Morrison and CFO Anthony DiDilvestro addressing a conference in Boca Raton, Florida, said it expects to reduce annual overhead expenses by at least $200 million, or 2 to 3 percent of its annual sales.

Under the new company structure, Campbell's will re-organize into the following three divisions - America's Simple Meals and Beverages - Global Biscuits and Snacks - Packaged Fresh - which it says are based mainly on product categories rather than geography or brand groups.

Simultaneously, management will focus on the restructuring of Campbell’s corporate functions, focused on effectively supporting the business segments, while reconsidering and revising the company’s cost structure.

Products under development include "to-go" soups that can be made in a Keurig Green Mountain Inc coffee machine.

The company also acquired or developed a slew of brands and products such as puffed Goldfish snacks and Bolthouse Farms, a producer of fresh carrots and beverages.

Also, Campbell, in partnership with the American Heart Association® and the Go Red for Women movement, is committed to women’s health with a portfolio of products and recipes featuring the American Heart Association® Heart-Check mark. This year Campbell is adding a new product to its portfolio of nearly 230 heart-healthy products, new Healthy Request Mexican-Style Chicken Tortilla soup. Additionally, Campbell has a collection of heart healthy recipes certified by the American Heart Association® found on CampbellsKitchen.com.

Analysts Opinions

Campbell Soup Company’s stock had its “hold” rating restated by research analysts at Deutsche Bank in a report released last Thursday. They currently have a $43.00 price objective on the stock. Deutsche Bank’s target price points to a potential downside of 7.78% from the company’s current price.

The company has been the subject of a number of research reports:-

• Analysts at Bank of America set a $48.00 price target on shares of Campbell Soup Company and gave the company a “hold” rating in a research note on Friday, February 13th.

• Analysts at Stifel Nicolaus reiterated a “hold” rating on shares of Campbell Soup Company in a research note on Friday, February 13th.

• Analysts at JPMorgan Chase & Co. lowered their price target on shares of Campbell Soup Company from $43.00 to $42.00 and set an “underweight” rating on the stock in a research note on Friday, February 13th.

• Finally, analysts at Citigroup Inc. reiterated a “sell” rating and set a $41.00 price target (down previously from $42.00) on shares of Campbell Soup Company in a research note on Friday, February 13th.

Five research analysts have rated the stock with a sell rating, four have given a hold rating and one has given a buy rating to the stock. The stock has a consensus rating of “Hold” and a consensus target price of $42.13.

Conclusion

It is believed that lower fuel costs will lead to higher consumer spending, which should help Campbell's bottom line, and with the current valuation there does not seem to be much downside risk regardless of the quarterly numbers.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the CPB May 2015 45.000 call (CPB150515C00045000) at or under $2.40, good for the day. Place a protective stop loss at $0.95 and a pre-determined sell at $4.00.



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