Campbell Soup Calls Could Double As Earnings Loom

Packaged food titan Campbell Soup Company (CPB) is fresh off a two-year high of $48.39 on Wednesday last week. And although the stock is down almost 3% since then, this mini-pullback could have bullish implications, if history is any guide.

This week’s short-term breather has CPB falling back to its 80-day moving average, after a lengthy period atop the trendline. According to Schaeffer’s Senior Quantitative Analyst Rocky White, this signal has flashed four times before, and the stock has averaged a two-week return of 6.6%, with three out of the four returns positive. From its current perch at $47, a move higher of similar magnitude would put Campbell Soup stock just under $50, territory not seen since December 2017.

Campbell Soup Calls Could Double As Earnings Loom

Daily Stock Chart CPB


Plus, implied volatilities on the equity are at low levels. The equity’s Schaeffer’s Volatility Index (SVI) of 37% registers in the 29th percentile of its annual range. If the SVI holds steady around its two-year average over the next couple of weeks, White’s modeling shows that an at-the-money CPB call option could potentially return 220% on another expected bounce from support at the 80-day trendline. In other words, prospective call buyers could more than triple their money on a 6.6% gain in the shares.

For a stock that’s nabbing multi-year highs, analysts have been hesitant to come aboard. Of the eight analysts covering CPB, six rate it a “hold” or “sell.” Plus, the consensus 12-month price target of $42.77 is a 8% discount to its current perch. A round of upgrades and/or price-target hikes could certainly provide tailwinds in the short term.

It’s also worth noting that the company’s fiscal first-quarter earnings report is due next Wednesday, Dec. 4 before the open. Campbell Soup has gapped higher after its last four quarterly reports, including two 10% bumps in February and June. During the past eight quarters, CPB has moved an average of 6.9% regardless of direction. This time around, the options market is pricing in an almost double, post-earnings swing of 7.9%.

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