Warming Up to Campbell Soup

NEW YORK ( TheStreet) -- Say what you want about how challenging this economy continues to be. But when you see how well Coca-Cola ( KO) and Pepsico ( PEP) are performing, it doesn't appear consumers are as worried about the price of the products they buy as analysts seem to be about stock valuations.

In the case of Campbell Soup Company ( CPB), which is as iconic as any brand on the shelves, investors can't seem to make up their minds. Like the porridge in the Goldilocks story, shares have been too hot or too cold.

After starting the year at $34.67 per share, Campbell steamed up more than 40%, reaching $48.83 on March 20. Since that high mark, however, it's as if investors have lost their appetite even though consumers did not. Now, although the stock is still up more than 23% year to date, shares of Campbell have cooled off, losing more than 12% over the past five months. After what I think was a solid year-end performance, one that went completely unnoticed, I believe these shares are just warming up.

If you've been following this sector for a while, there is nothing that analysts love to scrutinize more than "organic growth," which measures a company's operational performance using only internal resources and excluding events like acquisitions. As with, say, ConAgra Foods ( CAG), which has been growing solely through acquisitions, organic growth is something Campbell has been struggling to produce, including posting organic growth of just 1% this quarter.

To that end, I believe the emphasis on Campbell's organic growth is valid. But to the extent it negates a 13% year-over-year revenue improvement, I don't believe that to be the case. Just to put things in proper context, the nutritional/health concerns, which have plagued the soft drink industry and caused weak volumes across the globe, have done nothing to impact upon either Coca-Cola or Pepsi stock, even though both of their recent performances were "flat."

I won't deny that Campbell's 4% decline in sales volume was a disappointment. Although a lot is being made about the 2% drop in non-GAAP gross margins, that the company still advanced operating profit by 2% suggests that management continues to have a good pulse on this business. For that matter, Nestle ( NSRGY), which has become the gold standard in this industry, hasn't exactly outperformed Campbell in terms of growth, either.

I'm not going to tell you this was an exceptional quarter by any stretch. But I don't believe management pretended it was. But contrary to what is being said about the company, the numbers came in as expected -- not the "miss" that's being reported. It also seems the Street is conveniently ignoring that Campbell is still on the acquisition trail.

Investors are getting restless -- I get that. But management hasn't stopped looking for ways to grow. In fact, Campbell has been leveraging whatever it can to return value to shareholders. It's not going to happen overnight. I believe with the recently announced acquisition of Plum, a fast-growing producer of baby food, management deserves more time to synergize these operations. I'm bothered by the lack of attention that this deal has gotten.

Truth be told, there are still a lot of unknowns with this transaction. I'm not going to act as if it's a slam-dunk, earnings-growth guarantee. What I do know, though, is that Plum recently reported year-over-year revenue that soared more than 200%. To the extent that Campbell can harvest strong profitability out of such strong sales, it won't be long before management is able to reheat the growth optimism that the company enjoyed at the beginning of the year.

In the meantime, I expect that bears will continue to press the issue regarding the company's margins and organic growth. It's happened in the past to other giants like Kraft ( KRFT) and Kellogg ( K). But they overcame it, and so will Campbell.

To that end, I believe the risk/reward is heavily tilted to the positive side. And until revenue takes a turn for the worse, I remain a long-term bull on this company.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a co-founder of StockSaints.com where he serves as CEO and editor-in-chief. After 20 years in the IT industry, including 5 years as a high school computer teacher, Saintvilus decided his second act would be as a stock analyst - bringing logic from an investor's point of view. His goal is to remove the complicated aspect of investing and present it to readers in a way that makes sense.

His background in engineering has provided him with strong analytical skills. That, along with 15 years of trading and investing, has given him the tools needed to assess equities and appraise value. Richard is a Warren Buffett disciple who bases investment decisions on the quality of a company's management, growth aspects, return on equity, and price-to-earnings ratio.

His work has been featured on CNBC, Yahoo! Finance, MSN Money, Forbes, Motley Fool and numerous other outlets.

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