JPMorgan Increases Rating on Campbell Soup, Cites Success of Rao’s Sauce Segment

Campbell Soup’s recent acquisition of Rao’s parent company Sovos Brands has sparked interest from JPMorgan, leading to an upgrade in the Camden, New Jersey-based food company’s rating for the first time in 15 years. Analyst Ken Goldman upgraded Campbell to overweight from neutral, a rating that the bank hasn’t had on the stock since 2009. JPMorgan also raised its price target by $7 to $52, suggesting an 18% upside from Tuesday’s close.

Demand for Rao’s sauces and other Sovos products has been strong, exceeding expectations, according to Goldman. The acquisition of Sovos by Campbell for $2.7 billion in March is expected to result in improved synergies, with the Rao’s brand alone generating nearly $775 million in annual net sales in 2023. In addition to Rao’s, Sovos also owns brands like Michael Angelo’s and Noosa.

Campbell, known for its iconic soups and other products like Pepperidge Farm baked goods and Pace salsas, is also expected to see long-term profit margins higher than anticipated. JPMorgan believes Campbell will meet or exceed its long-term earnings per share growth path of 6% to 8% over the next few years.

Despite the excitement around Rao’s and the positive outlook from JPMorgan, Campbell has experienced a period of underperformance recently. The stock has seen a year-to-date gain of just over 4%, compared to an almost 15% increase in the S&P 500. However, with the potential growth from the acquisition of Sovos and strong performance of the Rao’s brand, Campbell Soup is expected to see improved bottom-line growth in the coming years.