Wall Street’s sell-side thinks Dan Loeb’s activist campaign against Campbell Soup Co. and the company’s plan to sell several of its assets is Mm Mm good for its stock price.
Analysts from at least two banks, UBS Group and Credit Suisse Group, in the past two days lifted their price targets even as they don’t recommend the stock.
The moves came as Campbell Soup said it would look to unload its Campbell International and Campbell Fresh businesses and use the proceeds to reduce its debt. The company will focus on its snacks business and meals and beverages business in North America.
Campbell’s announcement comes in response to activist hedge fund Third Point’s urging that the company put itself up for sale. Meanwhile the investor is currently trying to put together a slate of director nominees for the company’s annual meeting, according to a Reuters report Friday.
“Campbell’s board of directors considered a full slate of strategic options, including optimizing the portfolio, divesting businesses, splitting the company, and pursuing a sale,” Campbell’s interim president and CEO Keith McLoughlin said in a company statement on August 30. “The board and management team are committed to deleveraging the company, retaining our investment grade credit rating and maintaining our dividend.”
That same day, UBS raised its price target to $35 from $30, while keeping its “sell” recommendation on the stock. The bank pointed out in a 14-page report sent to clients the new valuation is based on a blend of multiples of earnings and cash flow measures using fiscal 2019 estimates. “If its board can navigate past activist disruption and execute its new plan, the key question becomes—how will investors value pro-forma Campbell?” UBS asked in its report dated August 30.
The investment bank estimates the company can generate between $3.5 billion and $4 billion in gross proceeds from selling the international and fresh foods businesses. As a result, the bank figures the company could pare debt by $3 billion.
Campbell will still be marketing its iconic soups and a number of well-known — but not necessarily well-performing — brands, including Pepperidge Farm Farmhouse, Milano cookies and Prego.
UBS says that after the sales are completed, Campbell’s stock will still deserve to trade at a discount to its U.S. food peers, but at a lower percentage rate than its average discount of the past three years.
Credit Suisse, meanwhile, raised its price target to $36 from $32, but maintained its “underperform” rating on the stock. The bank said it is unable to embrace the company’s long-term guidance of 7 percent to 9 percent growth, citing what it deems to be structurally declining consumption trends in its core soup and V8 beverages, pressure from grocer retailers for more concessions, and “execution risk” as it tries to integrate the recently acquired Snyder’s Lance snack giant.
Credit Suisse added: “An unexpected decision to sell the company or split it up represents the biggest upside risk to our rating and target price.”
Translation: If Loeb gets his way, the stock could go much higher than the target price.