Dead Money in the Pantry

Everyone knows The Campbell’s Company $CPB.

You may not own the stock or even buy the soup anymore, but you know the red-and-white can.

The same as what Andy Warhol painted in 1962.

This is a 155-year-old American brand machine that has been feeding families since 1869.

And yet, the stock has been a complete disaster.

Campbell’s reported earnings Monday morning, and while the one-day reaction was only slightly negative, that understates the bigger problem. 

The stock has been bleeding lower for years, earnings sentiment remains terrible, and on June 22, one of the original S&P 500 constituents will get booted from the index it helped define.

A soup company that once sat at the center of American consumer life is being pushed aside as competition in the consumer packaged goods industry heats up. 

The chart tells the rest of the story...

Campbell’s peaked in 2016 and has since fallen more than 70%, making it one of the biggest disasters in the S&P 500.

And this was supposed to be a "safe" stock...

Instead, CPB has been one of the worst places to hide.

Zooming out, the stock is now testing a major long-term level near $19.50. 

That zone acted as resistance throughout the early 1990s before Campbell’s finally broke out in 1995, and it later marked an important low in the early 2000s.

Now, after decades of trading history, the stock is right back where it started.

Over the short term, there is at least a more constructive setup.

Over the past few months, CPB has carved out a textbook bearish-to-bullish reversal pattern, with the upper bound of the base sitting near $22.50. 

And during Monday’s earnings reaction, the stock initially tested that area, quickly found sellers, and then recovered enough to close around the middle of the day’s range.

So no, Monday wasn't a total washout, but the burden of proof remains on the bulls.

Campbell’s reported mixed results, with revenue of $2.37 billion versus estimates of $2.38 billion and earnings per share of $0.50 versus estimates of $0.48. 

As a result, the stock fell 0.9%, marking its third consecutive negative earnings reaction and continuing a much broader pattern of investors refusing to reward this company around earnings.

And while one slightly negative reaction is not the end of the world, seven negative reactions in the last nine reports are woeful.

You can see that the earnings scorecard is covered with red.

In Campbell’s latest report, revenue growth fell more than 4% YoY, while diluted EPS growth declined more than 31%. 

The company has now posted three consecutive quarters of revenue contraction and seven straight quarters of severe earnings declines.

And the management team knows the business needs work... 

The company is working to simplify the portfolio, focus on core brands, accelerate productivity, and more.

That all makes sense, but the market doesn't care right now.

The market is looking at a stock that has collapsed more than 70% from its 2016 peak, a company being removed from the S&P 500, a chart trading at the same level it traded in the twentieth century, and an earnings scorecard covered in red.

Despite all the negatives, there may eventually be a trade here.

If CPB holds $19.50 and reclaims $22.50 with authority, we can talk about a failed breakdown and a potential mean-reversion setup. 

Stocks this hated can rally hard when the selling finally exhausts itself, especially if management proves the turnaround is more than cost cuts and brand nostalgia.

But we are not there yet...

For now, Campbell’s remains a broken consumer staples stock.

At the Premium Beat Report, we fuse technical analysis, earnings sentiment, and fundamental data to separate the companies investors want to own from the ones they are quietly abandoning.

Sometimes that means finding the next leadership stock before the crowd catches on.

Other times, it means avoiding the famous names that are still breaking down.

Campbell’s may be an American icon, but icons do not outperform just because we remember them fondly.

In the Premium Beat Report, we focus on stocks where fundamentals, earnings reactions, and price action all confirm the same bullish story.

And that's where the real opportunities live.

If you want access to our highest trades, join our growing community at the Premium Beat Report.

We hope you enjoyed this post,

-The Beat Team