Catalysts
- Distribution in place.
- Low stock dilution
- Consistent
- Low debt
Detriments
- Low cost competitor could come in. (Only if it could taste as good.)
- Why is the float so low?
- Lots of insider selling
- Buying back stock instead of paying down debt.
- If they write down the 2 billion in good will they have negative equity
- How much would a major food scare (recall) cost them?
- I don’t know their business model as well as I should. From what I understand most of their revenue comes from soup.
- I’m not sure what other liabilities they have besides the debt on the balance sheet.
- I didn’t take the time to look at the last 10 years of financial statements.
Moat
It would cost at least $1 billion to start up a soup company to compete with them. Even then it would still have to be priced lower otherwise people would just buy Campbell’s.
Share Count Trent
Their share count has declined by 7.5% over the last 5 years, but so has their stock. It would have been better to retire their debt instead. (Bad management)
Key Ratios and Competitors Key Ratios
- Operating Margin 5 Year Annual Average 15.57%
- ROA 5 Year Annual Average 10.03%
- Revenue Growth Rate 5 Year Annual Average 3.67%
- GIS Operating Margin 5 Year Annual Average 17.48%
- GIS ROA 5 Year Annual Average 5.91%
- GIS Revenue Growth Rate 5 Year Annual Average 5.38%
- HNZ Operating Margin 5 Year Annual Average 14.97%
- HNZ ROA 5 Year Annual Average 6.95%
- HNZ Revenue Growth Rate 5 Year Annual Average 4.10%
- PEP Operating Margin 5 Year Annual Average 17.69%
- PEP ROA 5 Year Annual Average 15.94%
- PEP Revenue Growth Rate 5 Year Annual Average 9.91%
- KO Operating Margin 5 Year Annual Average 26.04%
- KO ROA 5 Year Annual Average 15.82%
- KO Revenue Growth Rate 5 Year Annual Average 8.90%
Sustainable Operating Profit Margin
15%: Looks like this is the average over the last 5 years. Considering that the last 5 years were more or less boom years, this seems high.
10% is probably more sustainable.
Sustainable Revenue Growth Rate
4%: Looks like this is the average over the last 5 years. Considering that the last 5 years were more or less boom years, this seems high.
2% is probably more sustainable.
Balance Sheet Appreciation (Depreciation)
-1%: It probably takes lots of PPE to make that soup. The equipment is bound to wear out. So their assets would actually be a negative (because they really do depreciate and they have to dispose of them).
Pollyanna Owner Earnings Yield
Revenue: $7,998 (From 2008 10K)
Operating Profit Margin: 15%
Tax Rate: 35%
Profit (Using The Above Estimates): $7,998 x .15 x .65 = $779
(This calculation is very simplified. After looking at their cash flow statement, their depreciation expense is about the same as their CapEx expense and the rest of the cash flow statement seems insignificant (though I may be missing something).)
Short Term Debt: $703
Current Portion of Long Term Debt: $300
Long Term Debt: $1,633
Total Debt: $703 + $300 + $1,633 = $2,636
Basic Shares Outstanding: 373 (From 2008 10K)
Stock Price: $28 (Rounded from 2-26-09)
Market Cap: $10,300 (Rounded from 2-26-09)
Enterprise Value: $2,636 + $10,300 = $12,936
Pollyanna Revenue Growth Rate: 4%
Pollyanna Owner Earnings Yield: $779 / $12,936 = 6.02% + 4% = 10.02%
Sustainable Owner Earnings Yield
Revenue: $7,998 (From 2008 10K)
Operating Profit Margin: 10%
Tax Rate: 40%
Profit (Using The Above Estimates): $7,998 x .10 x .60 = $479
(This calculation is very simplified. After looking at their cash flow statement, their depreciation expense is about the same as their CapEx expense and the rest of the cash flow statement seems insignificant (though I may be missing something).)
Short Term Debt: $703
Current Portion of Long Term Debt: $300
Long Term Debt: $1,633
Total Debt: $703 + $300 + $1,633 = $2,636
Diluted Shares Outstanding: 381 (From 2008 10K)
Stock Price: $28 (Rounded from 2-26-09)
Market Cap: $10,700 (Rounded from 2-26-09)
Enterprise Value: $2,636 + $10,700 = $13,336
Sustainable Revenue Growth Rate: 2%
Sustainable Owner Earnings: $479 / $13,336 = 3.6% + 2% = 5.6
The reality will probably be somewhere in between. I imagine similar companies would produce the same results. Considering this analysis, I’m not sure how anyone could say the stock market is way undervalued. To be way under valued I’d want to see Sustainable Owner Earnings at 15%. For that to happen with Campbell’s you would need to see the stock price drop to $10 a share. (By the way, that’s not a forecast by any means.)
For those that haven’t looked, many stocks are only at 2004 prices. The same with houses.
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