Campbell Soup’s Acquisition of Rao’s Parent Company Fuels JPMorgan Upgrade to Overweight

Campbell Soup recently acquired Rao’s parent company, Sovos Brands, and this move has sparked interest from JPMorgan. As a result, the bank upgraded Campbell’s rating to overweight from neutral for the first time in 15 years. Analyst Ken Goldman made this upgrade based on the strong demand for Rao’s sauces and other Sovos products, which has exceeded expectations.

In March, Campbell acquired Sovos for $2.7 billion. The acquisition is expected to result in improved synergies and higher profit margins in the long run. The Rao’s brand alone generates nearly $775 million in annual net sales in 2023, and Campbell also owns other brands like Michael Angelo’s and Noosa.

Despite recent underperformance, Campbell is expected to see long-term profit margins higher than anticipated thanks to the acquisition of Sovos and the strong performance of the Rao’s brand. JPMorgan believes that Campbell will meet or exceed its long-term earnings per share growth path of 6% to 8% over the next few years.

While there is excitement around Rao’s and a 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.