Campbell Soup Co. (CPB) posted second-quarter 2011 earnings of $0.71 that remained in line with the Zacks Consensus Estimate but declined 4% from the prior-year period. Due to sluggish demand in the U.S., the sales of U.S. Soup, Sauces and Beverages division and North America Food Services division inched down 4% and 1%, respectively.
Moreover, Campbell is highly leveraged, which could adversely affect its credit worthiness and make it more susceptible to macro-economic factors and competitive pressures. Additionally, intense competition from other established players and exposure to unfavorable foreign currency translations undermines the company’s growth prospects.
Consequently, we have downgraded our recommendation on the stock to Underperform from Neutral. Our long-term Underperform recommendation on the stock indicates that it will perform well below the broader market. Our target price is $30.00 or 12.4x of 2011 EPS.
CAMPBELL SOUP (CPB): Free Stock Analysis Report
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