Campbell Soup ‘s acquisition of Rao’s parent Sovos Brands is a key part of why JPMorgan is now bullish on the Camden, New Jersey-based food company for the first time in 15 years. Analyst Ken Goldman upgraded Campbell to overweight from neutral, a rating the bank hasn’t had on the stock since 2009. JPMorgan also upped its price target by $7 to $52, which now suggests about 18% upside from Tuesday’s close. Demand for the popular Rao’s sauces and some other Sovos products has been “excellent” and could prove even better than expected, Goldman said. The analyst also said there could be improved synergies from its takeover of the Sovos brand, which Campbell bought in March for $2.7 billion . Campbell paid $23 a share in an all-cash deal for Sovos, whose other brands include Michael Angelo’s and Noosa. The Rao’s brand alone brought in nearly $775 million in annual net sales in 2023, driving Sovos sales above $1 billion last year. Rao’s organic net sales climbed about 37% in 2023 from 2022, boosting the acquired business’s growth rate to 25%. In addition to its iconic soups, Campbell makes Pepperidge Farm baked goods, Pace salsas and Lance-Snyder’s chips and snacks, among other product lines. JPMorgan also highlighted that Campbell’s long-term profit margin could turn out to be higher than Wall Street expects. The company should at least be able to meet its long-term earnings per share growth path of 6% to 8% over the next few years, JPMorgan said. “We believe that the combination of Rao’s strong growth, potentially higher deal-related accretion down the road than expected, and a self-help margin improvement story should give investors relatively high confidence that CPB can grow its bottom line as planned over the next few years,” the analyst told clients in a Wednesday note. “This is better than what other food companies might show with their earnings growth, we suspect.” CPB .SPX YTD mountain Campbell Soup vs. S & P 500, year to date Despite the excitement around Rao’s, the JPMorgan call comes amid a period of underperformance for Campbell. Campbell stock rose as much as 2.6% in early trading Wednesday, bringing its year-to-date gain to a little more than 4% versus an almost 15% advance in the S & P 500 .
