Campbell Soup's acquisition of Rao's parent company, Sobos Brands, is the main reason JPMorgan is bullish on the Camden, New Jersey-based food company for the first time in 15 years. Analyst Ken Goldman upgraded Campbell's investment rating to overweight from neutral, the first time the bank has rated the stock that way since 2009. JPMorgan also raised its price target by $7 to $52, implying an upside of about 18% from Tuesday's closing price. Demand for the popular Rao sauce and other Sobos products has been “very strong” and could be stronger than expected, according to Goldman. The analyst also noted potential synergies with the acquisition of Sobos Brands, which Campbell bought in March for $2.7 billion. Campbell acquired Sobos, whose brands include Michael Angelo's and Noosa, for $23 a share in an all-cash deal. The Lao's brand alone is expected to reach nearly $775 million in annual net sales in 2023, while Sobos sales exceeded $1 billion last year. Lao's organic net sales are expected to grow about 37% in 2023 over 2022, while growth from acquired businesses rose to 25%. JPMorgan also highlighted that Campbell's long-term profit margins could be higher than Wall Street expects. The Goldfish snack maker's concentrated soup should be able to achieve a long-term earnings per share growth trajectory of 6% to 8% at least over the next few years. “The combination of strong growth from Lao's, the potential for higher future deal-related gains than expected, and a story of organic margin improvement should give investors relatively high confidence that CPB can grow earnings as planned over the next few years,” the analysts told clients in a note on Wednesday. “I think that's probably better than the earnings growth of other food companies.” CPB .SPX Mountain Year to Date Campbell Soup vs. S&P 500 Year to Date Despite the excitement around Rao's, JPMorgan's comments come amid a lackluster performance for Campbell. The parent company of Pepperidge Farm Cookies was up 2.6 percent at the open on Wednesday, bringing its gain for the year to just over 4 percent, while the S&P 500 is up almost 15 percent.
