M’m! M’m! Good Time to Invest in Campbell’s?

Case Background: Everyone knows that soup is good food. But it may be time to think of it as a good stock investment, considering brand leader Campbell’s recent run. Campbell executives have, until recently, been reluctant to comment directly about the success of its new lower-sodium soup products, saying it was too early to tell about them. Company president Douglas R. Conant noted Friday, however, that this line has been increasing soup sales overall. Conant also pointed out that even if low-sodium soup sales were not increasing, they would nevertheless help the company. This is due to the product line’s having both higher prices and greater margins of profit.

Discussion: The market’s response was quite favorable. Closing at $42.29 on the New York Stock Exchange, Campbell shares were up almost 7 percent, reaching $2.71. This represents the highest share value in the past 52 weeks. For the quarter ended January 29, earnings were 72 cents a share, up from 61 cents a share from the previous quarter. In dollar amounts, this works out to $285 million, up from $254 million. Despite the good news, total sales were actually down 1 percent. Campbell’s PE stands at 23.06, compared with General Mills at 18.79; Heinz at 23.63; and Kraft at 18.90. Conclusion: There can be no doubt that Campbell is a rock-solid fixture in the food industry. However, the soup industry in general has experienced a slight downturn, as noted above. Still, company officials expect prosperous 2007 fiscal year, with forecasts of earnings per share growth to be in the range of 10 percent to 12 percent range; this is up from the previous forecast of 5 percent to 7 percent. Disclaimer: P/E ratios are a quick way to sort out the leaders within the same sector. Never use a P/E ratio exclusively to make an investment. Remember, a P/E ratio is measured using historical trailing earnings for the previous 12 months and does not necessarily indicate strong future earnings. P/E ratios, when used with other market value ratios, can help investors to make consistent returns and to minimize losses. Various interpretations of a particular P/E ratio are possible: 0-13 - Either the stock is undervalued or the company's earnings are thought to be in decline. 14-20 - For many companies, a P/E ratio in this range may be considered fair value. The average U.S. equity P/E ratio is usually around 14, which means it takes about 14 years for a company's stock to earn back its full purchase price. Average P/E over the entire market is a good indicator of overall market strength. 21-28 - Either the stock is overvalued or the company's earnings have increased since the last earnings figure was published. 28+ - A company whose shares have a very high P/E ratio either really does have an exceptionally rosy future or the stock may be the subject of a speculative bubble. A company with no earnings has an undefined P/E ratio. Financial information was provided by http://finance.yahoo.com (01/16/2007) This investment article was edited by http://www.proof-reading.com; copyright © 2006 PE-Ratio.com. All rights reserved.