Recommendation: Hold
The soup play may be over for now. Over the past year Campbell benefited from lower commodity costs, reduced spending on advertising, and the appeal of its brands as inexpensive ways to eat. The company (which also owns V8, Pepperidge Farm, and Swanson) profits when recession-weary consumers stay home. Its shares have gained a hearty 9% in the past year as the S&P 500 rose by 7%. But Campbell Soup's improvement is likely to reverse in the next year. Goldman Sachs estimates commodity inflation of 3% in Campbell's 2011 fiscal year. And if the company, based in Camden, N.J., is going to fend off a decline in soup consumption -- U.S. sales fell by 3% in the past 12 months -- it may have to pour more money into advertising. With Campbell trading at a price/earnings multiple similar to stronger food brands like PepsiCo and Kraft, investors should look elsewhere for deals.
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