Legacy Offerings Will Decline Yet Efficiency Measures Will Soften Impact

Key Takeaways

• Shifting consumer preferences and regulatory pressures are eroding demand for Campbell's legacy products, increasing costs and threatening long-term revenue and margin stability.
  
• Heavy reliance on aging brands and low loyalty among younger consumers hinder adaptation to market changes, raising risks to growth and market share.
  
• Focus on innovation, premium acquisitions, and efficiency initiatives positions Campbell's for stable growth, expanding appeal to younger consumers and strengthening margins despite ongoing economic challenges.

Catalysts

Manufactures and markets food and beverage products in the United States and internationally.

• The continued consumer shift toward fresh and minimally processed foods is structurally eroding demand for Campbell's traditional processed and canned offerings, threatening long-term core revenue growth and challenging the company's ability to maintain volume in legacy brands.
  
• Younger, health-focused consumers exhibit low loyalty to legacy food brands, accelerating attrition and putting persistent downward pressure on sales across Campbell's centerpiece product lines, which could undermine top-line expansion for years to come.
  
• Rising regulatory demands and evolving labeling requirements targeting sodium, preservatives, and additives in processed foods are likely to force Campbell's into costly product reformulations and compliance investments, increasing operating costs and compressing net margins.
  
• Overreliance on a narrow portfolio of aging, iconic brands that are losing relevancy exposes Campbell's to secular consumer behavior changes, making it difficult to offset declines with newer products and resulting in potential revenue stagnation or outright declines.
  
• Intensifying industry pressure from retail consolidation and private-label growth is eroding pricing power and market share, while volatility in commodity and packaging costs driven by climate and supply chain disruptions further threatens margin stability and future earnings growth.

Campbell's Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Campbell's compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Campbell's's revenue will decrease by 1.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.4% today to 9.0% in 3 years time.
• The bearish analysts expect earnings to reach $893.8 million (and earnings per share of $2.9) by about July 2028, up from $454.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 11.2x on those 2028 earnings, down from 21.9x today. This future PE is lower than the current PE for the US Food industry at 19.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Campbell's Future Earnings Per Share Growth

Risks

• Increased at-home cooking trends and consumer demand for convenient, value-oriented meal solutions are showing resilience despite macroeconomic pressures, supporting steady or rising revenue and reinforcing Campbell's core Meals & Beverages portfolio.
  
• The Rao's premium sauce acquisition and continued strong growth in both premium and mainstream product lines demonstrate the company's ability to innovate successfully and expand into higher-value categories, providing a boost to net sales and gross margins over time.
  
• Younger households, including millennials, are increasingly purchasing Campbell's products, leading to six consecutive quarters of share gains for condensed and broth categories, which supports positive volume growth and household penetration for future earnings strength.
  
• Productivity and cost-saving initiatives, along with continued integration of recent acquisitions, are expected to drive improved operating efficiency and help mitigate inflationary and tariff-related headwinds, sustaining or improving net margins.
  
• The company's focus on innovation, better-for-you portfolio expansion, strategic digital transformation, and balanced approach to promotional investment positions Campbell's to capitalize on long-term secular trends in consumer behavior, supporting stable to increasing revenue and earnings.

Valuation

• The assumed bearish price target for Campbell's is $28.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Campbell's's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $62.0, and the most bearish reporting a price target of just $28.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $9.9 billion, earnings will come to $893.8 million, and it would be trading on a PE ratio of 11.2x, assuming you use a discount rate of 6.4%.
• Given the current share price of $33.31, the bearish analyst price target of $28.0 is 19.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.