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Sovos' (SOVO) Shares Surge 25% on Acquisition Offer by Campbell
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Sovos Brands, Inc.’s shares surged 25.2% on Monday after it was reported that Campbell Soup Company (CPB - Free Report) would acquire the sauces and frozen food manufacturer in a $2.7 billion deal. Campbell’s shares fell 1.8% on the news.
The deal is expected to go through by December, pending regulatory approvals and Sovos’ stockholder approval. The valuation of the company includes $2.33 billion in cash, with the balance being the purchase of debt. Campbell plans to finance the considerably priced deal through new debt.
What’s in It for Campbell?
There is a general feeling that the takeover would strengthen Campbell’s product portfolio with brands that are fast growing. Sovos-owned brands like pasta sauce Rao’s, Noosa and Michael Angelo’s would only bolster the company’s offering. Also, on the demand side, in the post-pandemic era, consumers have limited their visits to restaurants, and packaged food sales have gone up. Prices for packaged products have also increased, citing input costs as the main driver. This is a good time to acquire packaged foods brands that already have a footprint.
It is also worth a note that per Campbell’s annual report for 2022, the meals and beverages division, which includes ready-to-serve soups, dinner sauces, juices and gravies, was its top revenue generator for the year. Sovos fits perfectly well in this category if CPB is looking for a line expansion.
Why Sovos?
Sovos, which is part of the Zacks Food – Natural Foods Products industry, has been enjoying a decent year. The current-year Zacks Consensus Estimate for Sovos’ earnings is $0.65 per share, suggesting 8.3% growth from the year-ago reported figure. Also, for 2024, the Zacks Consensus Estimate for earnings is $0.77 per share, implying growth of 18.2% from the prior-year quarter. The Zacks Consensus Estimate for 2024 earnings has improved 1.3% over the past 60 days.
On Aug 7, Sovos reported second-quarter earnings of $0.17 per share, beating the Zacks Consensus Estimate of $0.13. This also compares to earnings of $0.13 per share a year ago. The company posted revenues of $217.6 million, beating the Zacks Consensus Estimate by 2.60% and improving from $197.4 million in the year-ago quarter. Notably, SOVO reported a better-than-expected top line for the fourth straight time.
Can CPB Afford This Deal?
It would not be unreasonable to infer that Campbell is well-placed to go for this steeply priced deal, courtesy of having a good year itself. First of all, in May, it sold its Emerald Nuts brand for an undisclosed amount to Flagstone Foods.
The Zacks Consensus Estimate of $3 earnings per share for the year suggests 5.3% growth from the year-ago earnings of $2.85. For 2024, the consensus estimate for earnings of $3.13 per share implies growth of 4%. On the revenue front, the consensus estimate for CPB’s current-year sales is $9.4 billion, indicating 9.3% growth over the prior year.
Zacks Rank & Competition
Sovos, currently carries a Zacks Rank #2 (Buy), is one of the top-ranked stocks in the Zacks industry. It is doing much better than peers from the same industry, like SpartanNash Company (SPTN - Free Report) . SpartanNash currently carries a Zacks Rank #3 (Hold), and its earnings are estimated to go down by 3.9% for the current year. Campbell, too, carries a Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Sovos' (SOVO) Shares Surge 25% on Acquisition Offer by Campbell
Sovos Brands, Inc.’s shares surged 25.2% on Monday after it was reported that Campbell Soup Company (CPB - Free Report) would acquire the sauces and frozen food manufacturer in a $2.7 billion deal. Campbell’s shares fell 1.8% on the news.
The deal is expected to go through by December, pending regulatory approvals and Sovos’ stockholder approval. The valuation of the company includes $2.33 billion in cash, with the balance being the purchase of debt. Campbell plans to finance the considerably priced deal through new debt.
What’s in It for Campbell?
There is a general feeling that the takeover would strengthen Campbell’s product portfolio with brands that are fast growing. Sovos-owned brands like pasta sauce Rao’s, Noosa and Michael Angelo’s would only bolster the company’s offering. Also, on the demand side, in the post-pandemic era, consumers have limited their visits to restaurants, and packaged food sales have gone up. Prices for packaged products have also increased, citing input costs as the main driver. This is a good time to acquire packaged foods brands that already have a footprint.
It is also worth a note that per Campbell’s annual report for 2022, the meals and beverages division, which includes ready-to-serve soups, dinner sauces, juices and gravies, was its top revenue generator for the year. Sovos fits perfectly well in this category if CPB is looking for a line expansion.
Why Sovos?
Sovos, which is part of the Zacks Food – Natural Foods Products industry, has been enjoying a decent year. The current-year Zacks Consensus Estimate for Sovos’ earnings is $0.65 per share, suggesting 8.3% growth from the year-ago reported figure. Also, for 2024, the Zacks Consensus Estimate for earnings is $0.77 per share, implying growth of 18.2% from the prior-year quarter. The Zacks Consensus Estimate for 2024 earnings has improved 1.3% over the past 60 days.
On Aug 7, Sovos reported second-quarter earnings of $0.17 per share, beating the Zacks Consensus Estimate of $0.13. This also compares to earnings of $0.13 per share a year ago. The company posted revenues of $217.6 million, beating the Zacks Consensus Estimate by 2.60% and improving from $197.4 million in the year-ago quarter. Notably, SOVO reported a better-than-expected top line for the fourth straight time.
Can CPB Afford This Deal?
It would not be unreasonable to infer that Campbell is well-placed to go for this steeply priced deal, courtesy of having a good year itself. First of all, in May, it sold its Emerald Nuts brand for an undisclosed amount to Flagstone Foods.
The Zacks Consensus Estimate of $3 earnings per share for the year suggests 5.3% growth from the year-ago earnings of $2.85. For 2024, the consensus estimate for earnings of $3.13 per share implies growth of 4%. On the revenue front, the consensus estimate for CPB’s current-year sales is $9.4 billion, indicating 9.3% growth over the prior year.
Zacks Rank & Competition
Sovos, currently carries a Zacks Rank #2 (Buy), is one of the top-ranked stocks in the Zacks industry. It is doing much better than peers from the same industry, like SpartanNash Company (SPTN - Free Report) . SpartanNash currently carries a Zacks Rank #3 (Hold), and its earnings are estimated to go down by 3.9% for the current year. Campbell, too, carries a Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.