Campbell Soup Company (CPB) Heats Up

Campbell Soup Company (CPB) may have bears fleeing on a positive earnings surprise

Nov 24, 2015 at 11:02 AM
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Campbell Soup Company (NYSE:CPB) has been serving up iconic comfort food in a can since 1922. On the charts, CPB has been trending higher since its most recent dip in 2009. Yet the outlook for the company was uncertain at best heading into its quarterly earnings report.

As autumn began, unseasonably warm weather due to El Nino was expected to weigh on sales of soup. Then, in early November, Campbell announced that it was making changes to its chicken-noodle soup recipe -- paring the ingredient list to 20 from 30, and moving to more natural ingredients and fewer added flavors. While consumer sentiment was the driving force behind the change, there is always a risk when a company starts messing with one of its most-loved products ("New Coke," anyone?). Most recently, Campbell was forced to recall 355,000 cans of SpaghettiOs due to parts of the can lining being found in some of the products, presenting a choking hazard.

While the shares suffered a small slump on all this news, today is a different story. CPB just reported adjusted quarterly earnings of 95 cents per share -- higher than the 76 cents expected on the Street. And while the company cut its sales forecast, it increased its full-year earnings guidance. As a result, the shares hit a new 16-year high today, at $52.48, and were last seen trading at $51.31, a 3% increase over yesterday's close.

This likely means it's time for some upgrades for CPB. Currently, only one analyst following the stock rates it a "strong buy," compared to 11 "hold" or "sell" ratings. Options traders have been incredibly pessimistic, too. The Schaeffer's put/call open interest ratio (SOIR) on CPB sits at an annual high of 1.35. Likewise, the stock has a 10-day put/call volume ratio of 23.18 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- in the bearish 99th percentile for the past year.

Trade-Alert data indicates that the mood is already shifting in the options pits today. The most active strike on Campbell is the now-in-the-money December 50 call, with 173 contracts traded this morning. And overall, calls are being traded at four times the stock's average intraday rate.

Higher highs could be ahead for Campbell as bears abandon their positions. While the 4.3% of CPB's total float sold short doesn't sound so significant, it would take more than a week of trading, at the stock's typical volumes, to buy back all of those shares -- which could easily keep the soupmaker's rally going.

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