Well that didn’t last long.
Shares of Campbell Soup (CPB) and Kraft Heinz (KHC) are lower Tuesday, a day after they got a boost from rumors that Kraft might buy the soup maker.
Analysts weren’t bowled over by the combination yesterday, and that lack of enthusiasm continued today. Bernstein’s Alexia Howard reiterated an Outperform rating on Kraft, but warns that buying Campbell “will not solve the company’s ‘perception problem.'”
Like, others, Howard thinks that a deal would be earnings accretive to Kraft. But that’s not her complaint: Kraft’s potential acquisition targets may be unlikely to sell to a company that’s poorly managed sales in the U.S., and she warns that if “Kraft Heinz were to buy Campbell Soup, where sales growth has been lackluster for most of the last decade, this is unlikely to improve the company’s reputation.” Kraft would be better served, she argues by snapping up a consumer-products company with mover overseas exposure, like Mondelez International (MDLZ), PepsiCo (PEP) or Colgate-Palmolive (CL), giving it the potential to boost top-line growth internationally.
Elsewhere, Piper Jaffray’s Michael Lavery has much of the same argument against the deal. He reiterated an Overweight rating on Kraft and an Underweight rating on Campbell, writing that the latter isn’t a good fit for Kraft, which is seeking “strong brands that can travel internationally.”
He writes that a play for Campbell might be disappointing for investors, who believe that Kraft can “dream bigger,” and he too thinks that Mondelez would make more sense for Kraft to pursue.
Kraft is down 0.2% to $63.17 this afternoon, while Campbell is off 1.5% to $41.58. The Consumer Staples Select Sector SPDR ETF (XLP) is falling 0.3% to $51.73.
