On Monday July 28, Kraft (NYSE: KFT) will be reporting its earnings results for the second quarter. Kraft is a well-known manufacturer of supermarket foodstuffs. We all know the brands: Oreo cookies, Nabisco, Oscar Meyer and many, many others.
It should be a defensive stock, just like Campbell Soup (NYSE: CPB) or PepsiCo (NYSE: PEP), right? Well, it is and it isn't. It's defensive in the sense that, as the cliche goes, people still want to eat their favorite foods even during recessionary times. It isn't in the sense that the stock is down by 16% (as of this writing) in the one-year time period. It does have a nice dividend yield, however, and Warren Buffet seems to like it.
What should investors be looking for on Monday? Well, they should definitely be looking at the margins. Is Kraft navigating this inflationary period in as efficient a manner as possible? I think Kraft will do OK in this regard. I'm not expecting any sort of wide expansion of gross margin, but I think management will report stability in this area.
Hershey (NYSE: HSY) , which recently reported numbers for its own quarter (see Brent Archer's idea for a trade involving Hershey options), did well in keeping margin-erosion at bay. Hershey also beat estimates by a penny. Considering that Kraft beat analyst estimates last quarter, that it has a good history of going beyond expectations and that Hershey was able to beat, then I would have to say that Kraft should have no problem beating on Monday. Hershey has had its share of troubles lately, keep in mind.
According to The Wall Street Journal, Campbell Soup (NYSE: CPB) plans on executing a nice buyback program for its stock. The company will repurchase perhaps as much as 10% of its shares over time. Also, earnings will probably come in near the top point of the previously stated range. So, should you rush in and invest in Campbell just because of this buyback?
My opinion: Probably not if you're looking to merely trade the name, but if you're looking to hold for the long term, you'll probably be all right. Although Campbell Soup's stock isn't near a 52-week low as of this writing, I notice that Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), and Kraft (NYSE: KFT) aren't too far from theirs. It's been a crazy time for the markets, and it amazes me that a stock like Coke isn't being perceived as a safe haven. I know there are some reasons out there for its weakness in terms of growth prospects and the like, but still, I've watched it drop quite a bit in very recent times (I own Coke), and I'm a bit surprised at its current price action considering the recession.
So, even though Campbell's buyback is great news for shareholders who already own the stock, I'm not sure I'd initiate a position myself. Although I am looking for stocks to buy, I just haven't been able to ignore the technical damage that's been inflicted upon the big averages by the bears and am reticent at putting new money to work in short-term trades. I think management might be doing the right thing with its buyback from a shareholder standpoint, but from a trading perspective, I would not be buying along with them.
Disclosure: I own Coke; positions can change at any time.
Deutsche Telekom (NYSE:DT) was upgraded to "overweight" from "neutral" at JP Morgan, according toMarketWatch. The financial news site also reports that France Telecom (NYSE:FTE) was upped to "buy" from "neutral" at Merrill Lynch.
Stifel Nicolaus & Co reiterated its "hold" rating on Campbell Soup (NYSE:CPB) ahead of the company annual meeting according to the AP.
Merrill Lynch resumed coverage of Home Depot (NYSE:HD) with an "underperform" rating, according toBriefing.com. The news service also reports that JP Morgan initiated Comcast (NASDAQ:CMCSA) with an "overweight" rating.
Douglas A. McIntyre is an editor at 247wallst.com.
MOST NOTEWORTHY: Siemens, Con-Way, Old Dominion Freight and Yahoo! were today's noteworthy upgrades:
Goldman added Siemens (NYSE: SI) to their Conviction Buy List on valuation, as they believe investors are overlooking potential catalysts for the stock, such as the company's buyback and margin expansion opportunities. Shares remain Buy rated.
Baird upgraded LTLs Con-Way (NYSE: CNW) and Old Dominion Freight (NASDAQ: ODFL) to Outperform from Neutral based on valuations, less fuel exposure, and better business models than TLs.
Soleil upgraded Yahoo! (NASDAQ: YHOO) to Hold from Sell on valuation, as the stock is near their $22 target.
Kaufmann has started The Knot (NASDAQ: KNOT) as a "buy," according to the AP.
Soleil upgraded Yahoo! (NASDAQ: YHOO) to "hold" from "sell," according toBriefing.com. The news service also reports that Stanford initiated Time Warner (NYSE: TWX) with a "buy" rating.
Campbell Soup (NYSE: CPB) raised to Overweight from Equalweight at Lehman, according to 24/7 Wall St.
Late last year, the Campbell Soup Company (NYSE: CPB) sold off Godiva Chocolatier for a cool $850 million. So why give up such a prized brand?
Well, it will mean that Campbell can focus on its core business of soups and snacks. Next, the chocolate market is highly competitive -- especially in light of the recent deal between Mars and Wm. Wrigley Jr. Company (NYSE: WWY).
The deal was also a big help for the Q1 results. Net income went from $217 million, or $0.55 per share, to $532 million, or $1.40 per share. Revenue increased 7.4% to $1.88 billion. Unfortunately, soup revenues were meager, falling 3%. Simply put, Campbell's competitors are getting the upper hand. It also doesn't help that there is commodities inflation.
On the conference call, Campbell was upbeat. After all, the company is launching a variety of health-conscious offerings. But so far, investors aren't convinced. In today's trading, Campbell's shares fell 6% to $33.70. It was the lowest level in eight years.
Today started out as a good day, but traders went back to "do the opposite of what feels good." The Conference Board showed that April's leading economic indicators were +0.1%. Oil also stayed above $127 per barrel.
Here are the unofficial closing prices for US index levels:
Amazon.com (NASDAQ: AMZN) saw a sharp rise with shares up over 7% at $82.22 late in the day after Goldman Sachs added it to the CONVICTION BUY LIST.
Campbell's Soup (NYSE: CPB) saw a 5% drop by the end of the day to $34.06 after a disappointing result.
Lowe's Companies (NYSE: LOW) saw a 2.5% drop to $24.25 by the end of the day after the company's earnings came in line but guidance was weak.
Pacific Ethanol Inc. (NASDAQ: PEIX) saw shares rise an unbelievable 49% with shares at $4.78 late in the day after the battered ethanol producer beat earnings expectations.
SanDisk Corp. (NASDAQ: SNDK) was down over 8% at $29.74 in the final minutes today after making cautious comments at a JPMorgan investor conference.
Jon Ogg produces and edits the "10 Stocks Under $10" newsletter and he does not own securities in the companies he covers.
If you were paying close attention to this column last week, you would have sidestepped some of the pain and misery investors in many of the stocks discussed have suffered lately. Of late, we have seen the general direction of the markets turn positive, even in the face of news to the contrary.
Perhaps it is because investors have an appetite for stocks, since there seems to be few investment alternatives. Real estate is off limits and the yield on bonds and other fixed-income investments is pathetically low.
The theme for the week ahead is SMOOTH SAILING. In this week's column, we delve into some stocks that will be announcing earnings, and that may benefit from the changing tide of investor sentiment. To be sure, there will be several areas of choppiness as we continue to be bombarded by the stormy realities of a turbulent economy.
Monday, May 19
The chart for Campbell Soup (NYSE: CPB) looks M'm M'm good. Sporting a smooth line with nary a ripple over the past 12 months, management has done a great job at keeping both company earnings and share price up, even in the face of significant food inflation. While shares have been condensing during the past few months, recently they have been rising with a series of higher highs and higher lows. Be on the outlook for earnings of 44 cents per share on revenue expectations of $1.89 billion. Now that I think of it. That's a lot of soup wrapped in tin-plated steel -- one of many materials that has seen its price almost double in the past six months.
Everyone loves ketchup (well, then again, I'm sure there are a few out there who don't). But should everyone love Heinz's (NYSE: HNZ) latest earnings missive?
I say the earnings were respectable, if not utterly spectacular, in the third quarter. The top line moved up a robust 14% to $2.6 billion in sales; operating income increased 8%. The bottom line, however, was, eh, okay -- $0.68 per diluted share for this Q3 versus $0.66 per diluted share for last year's Q3. A two-penny increase isn't a reason to party, I suppose. Then again, Heinz isn't one of those companies that inspire you to throw a party upon an earnings release. Like Hershey (NYSE: HSY), Campbell Soup (NYSE: CPB), General Mills (NYSE: GIS), Kellogg (NYSE: K), and Kraft (NYSE: KFT), it's a consumer foodstuffs name backed by a portfolio of well-known brands that people gravitate toward every day in supermarkets across the globe.
Here's the thing about Heinz, however: it sports a yield of approximately 3.3%, and it is in the middle of a tight 52-week range. That is definitely an attractive situation for the stock. Heinz is being perceived as a safe, recession-proof play. I'm not sure anything is truly recession-proof, but I do think the yield is impressive, and I think that such a stock may continue to hold steady, and even outperform, in this environment.
MOST NOTEWORTHY: Teradyne, Omnivision and DemandTec were today's noteworthy upgrades:
Oppenheimer upgraded shares of Teradyne Inc (NYSE: TER) to Outperform from Perform after channel checks indicated several positive catalysts, including continued market share gains and that the company is benefiting from the inventory build of game consoles.
Jefferies upgraded Omnivision Technologies (NASDAQ: OVTI) to Buy from Hold and named the stock their Tuesday Value Pick, as they find the risk/reward favorable at current levels. Jefferies thinks fundamentals will likely bottom in the April quarter.
JMP Securities raised DemandTec Inc (NASDAQ: DMAN) to Strong Buy from Outperform, as they believe the company had a very strong close to the year and is seeing real traction with its Promotions product.
With the markets still in a choppy/consolidation mode (or perhaps worse), it's best to consider including a few defensive stocks in your portfolio. With this in mind, Campbell Soup is worth an evaluation.
Campbell (NYSE: CPB) is the world's biggest soup maker and a leader in the U.S. packaged foods segment. The company is best known for its Campbell's Soup brand, which attained cultural icon status due to renditions by artist Andy Warhol, central figure in pop art.
Analysts see F2008 revenue increasing an impressive 8-10%, excluding the sale of its Godiva Chocolate division. The soups group is expected to benefit from ramping low-salt product and improved-convenience product sales, and modest pricing power.
Also, productivity improvements should contribute to bottom-line gains. Longer-term, CPB has ample room to increase market share internationally (particularly in China and Russia), aided by new products and an expanded distribution network. The Reuters F2008/F2009 EPS consensus estimates for CPB are $2.06/$2.25.
The risks? Analysts are keeping an eye on Campbell's ingredient costs, as well as the impact of generic-brand competitors in key CPB segments.
The First Call mean rating for CPB is: Buy [16 firms]. Mean 2008 target: $40 [high: $46, low: $35].
Stock Analysis: Campbell Soup is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from CPB's shares. Sell/Stop Loss if you were to purchase shares in this company: $18.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
H. J. Heinz Company (NYSE: HNZ) is one of the world's largest food producers, offering ketchups, condiments, sauces, frozen foods, soups, beans, pastas, infant foods and other processed food products to retailers, the foodservice industry and the U.S. military. The firm's leading brands include Heinz ketchup, Ore-Ida potato products, Weight Watchers Smart Ones entrees, Boston Market meals and T.G.I. Friday's snacks. Sixty percent of sales are generated outside of the United States. Campbell Soup (NYSE: CPB) and ConAgra Foods (NYSE: CAG) are major competitors.
The company pleased investors last week, when it guided Q3 EPS to 67-68 cents. Analysts had been looking for 63 cents. The Q3 results are expected to include commodity cost inflation, which the firm is overcoming with higher net pricing, productivity gains and favorable foreign exchange rates. Management also guided FY08 EPS to $2.60-$2.62 ($2.62 consensus). Merrill Lynch subsequently upgraded its HNZ recommendation to "buy".
On Monday July 28, Kraft (NYSE: KFT) will be reporting its earnings results for the second quarter. Kraft is a well-known manufacturer of supermarket foodstuffs. We all know the brands: Oreo cookies, Nabisco, Oscar Meyer and many, many others. 
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Earnings preview: Does Kraft have the recipe for a successful quarter?
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