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.
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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