Campbell's stock downgraded as company must 'work harder for less growth'

By Steve Gelsi

D.A. Davidson cuts Campbell Co.'s rating to neutral from buy, citing a shift by consumers to private-label foods

Campbell Co.'s stock drew a downgrade to neutral from buy on Friday, as the food giant faces stiffer competition from consumers shifting to less expensive private-label foods.

D.A. Davidson analyst Brian Holland said Campbell's (CPB) stock-price advance is outpacing the fundamentals of its business.

"Food companies will have to work harder for less growth in a more competitive environment," Holland said in a research note.

The company faces "consumer pressures, improved supply chain, and private label recovery," he said.

Private-label products are usually store brands or other consumer products that typically sell for less than major consumer brands.

Campbell faces "near-term volume pressure and minimal price contribution weighing on the top line, while marketing and selling reinvestment constrains margins," Holland said.

While the current challenges are cyclical and likely to change when economic conditions improve, Holland doesn't see a near-term catalyst for Campbell.

With a year-to-date stock gain of 14.3%, Campbell's stock has performed better than that of most large food companies, with the exception of WK Kellogg Co. (KLG).

"Given the company has levered advertising more than any food company over the past three years, and as industrywide demand headwinds persist, we see risk reinvestment will not yield improved sales and profits - at least over the next 12 months," Holland said.

Holland reiterated a 12-month price target of $51 a share for Campbell.

Campbell's stock fell 20 cents to $49.22 a share on Friday.

-Steve Gelsi

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09-27-24 1424ET

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