The Campbell's Company: Why I'm Starting To Buy The Underdog

The Campbell’s Company (CPB) has long been a poster child for the challenges facing legacy consumer-staples firms. Yet, for value investors seeking undervalued defensive plays, the stock’s recent performance and strategic recalibration present a compelling case. With a 4.82% dividend yield [5], a debt-to-equity ratio of 176.2% [2], and a P/E ratio of 21.10 [5], Campbell’s fits the classic value-investing mold: a company trading at a discount to its intrinsic value, with a history of stable cash flows and a dividend that has weathered economic storms. But the question remains: Is this underdog poised for revival, or is it a cautionary tale in disguise?

A Tale of Two Businesses: Acquisitions and Organic Struggles

Campbell’s Q2 2025 results underscored the duality of its strategy. Total revenue rose 9% to $2.7 billion, driven by the Sovos Brands acquisition [1], yet organic sales fell 2% due to pricing pressures and flat volume [1]. This dichotomy reflects a broader trend: the company is relying on M&A to offset declining performance in its core Snacks division, where brands like Goldfish and Snyder’s of Hanover have underperformed amid heightened competition [2]. Meanwhile, the Meals & Beverages segment—bolstered by premium offerings like Rao’s and Kettle Brand—posted 6% organic growth [2], suggesting that Campbell’s pivot toward value and convenience could resonate with consumers.

The Sovos acquisition, which added high-margin products like Noosa yogurt and Bolthouse Farms, has been a mixed blessing. While it drove top-line growth, it also added $6.8 billion in total debt [2], exacerbating the company’s already elevated leverage. Yet, this debt load is not without upside. With a return on equity (ROE) of 11.77% in Q2 2025 [1], Campbell’s is generating returns that exceed its cost of capital, and its $375 million cost savings program through 2028 [4] could free up cash to delever and reinvest in innovation.

Strategic Resilience in a Tough Operating Environment

Campbell’s management has not been blind to its challenges. CEO Mick Beekhuizen acknowledged the “softness in snacking categories” [1] and revised full-year guidance to reflect a more cautious outlook. Yet, the company’s response has been pragmatic. It expanded its cost-cutting initiatives, targeting $375 million in savings by 2028 [4], and returned $283 million to shareholders in the first half of fiscal 2025 [1]. These actions signal a commitment to balancing short-term profitability with long-term resilience—a critical trait for value investors.

The company’s focus on innovation also deserves attention. New product launches, such as Kettle Brand avocado oil chips and premium soup offerings, align with shifting consumer preferences toward healthier, premiumized options [2]. In a sector where private-label competition is intensifying, Campbell’s brand portfolio—anchored by its Snacks division’s direct-store-delivery model—offers a durable moat.

Industry Tailwinds and Macro Risks

The consumer-staples sector is entering a phase of normalization. With inflation easing and the Federal Reserve signaling rate cuts in 2025 [1], the sector’s defensive characteristics—stable demand and pricing power—are set to shine. E-commerce and convenience-driven consumption are also tailwinds, with over 90% of U.S. and Chinese consumers shopping online [2]. For Campbell’s, this bodes well for its digital transformation efforts, which aim to enhance consumer insights and marketing efficiency [2].

However, risks remain. Tariff-related costs could subtract $0.03–$0.05 per share in fiscal 2025 [2], and the Snacks division’s 5% organic sales decline [2] highlights the fragility of its core business. Additionally, the company’s updated guidance—net sales growth of 6% to 8% and adjusted EPS of $2.95–$3.05 [1]—suggests a challenging path to outperforming peers like Procter & Gamble and Coca-Cola [3].

The Value Case: Dividend Safety and Margin of Safety

Despite these headwinds, Campbell’s offers a margin of safety for patient investors. Its 4.82% dividend yield [5] ranks among the highest in the sector, supported by a payout ratio of 65% (based on $567 million in full-year 2025 net income [5]). With a P/E ratio of 21.10 [5] and a forward P/E of roughly 16 (based on updated guidance), the stock appears undervalued relative to its peers.

Moreover, the company’s balance sheet, while leveraged, is not in crisis. Cash flow from operations of $737 million in the first half of 2025 [1] provides flexibility to service debt and fund innovation. For value investors, the key question is whether Campbell’s can stabilize its Snacks division and sustain its cost savings. If it can, the stock’s current valuation offers a compelling entry point.

Conclusion: A Calculated Bet on Revival

Campbell’s is not a glamour stock, but its combination of a high yield, strategic clarity, and industry tailwinds makes it a compelling value play. While the road to revival is fraught with challenges—tariffs, snacking category softness, and a debt-laden balance sheet—the company’s cost discipline, innovation pipeline, and defensive positioning in the consumer-staples sector offer a path to outperformance. For investors willing to bet on management’s ability to execute its long-term growth algorithm [4], Campbell’s represents a rare opportunity to buy a resilient underdog at a discount.

**Source:[1] Campbell's Reports Second Quarter Fiscal 2025 Results [https://investor.thecampbellscompany.com/news-releases/news-release-details/campbells-reports-second-quarter-fiscal-2025-results][2] Campbell's Earnings Surge Amid Shift in Consumer Behavior [https://www.ainvest.com/news/campbell-earnings-surge-shift-consumer-behavior-assessing-long-term-viability-play-food-stocks-post-pandemic-era-2509/][3] Consumer Staples Sector Outlook 2025 [https://www.fidelity.com/learning-center/trading-investing/outlook-consumer-staples][4] Campbell's Q4 FY25 Slides Reveal Stable Performance and Expanded Cost Savings Program [https://www.investing.com/news/company-news/campbells-q4-fy25-slides-reveal-stable-performance-and-expanded-cost-savings-program-93CH-4221431][5] Campbell Soup (CPB) Financial Statements [https://www.tipranks.com/stocks/cpb/financials]