Campbell's (CPB) fiscal Q2 setup doesn't look "particularly promising," with RBC Capital Markets cautioning that "risk skews to the downside" and a guidance cut is a real possibility amid continued challenges in the packaged food sector.

In an earnings preview Monday, the firm noted that Campbell's snacking business remains pressured by heightened competition and promotional activity, while scanner data does not provide strong evidence of a turnaround.

The firm also pointed to weak industry sentiment, as recent results from rivals General Mills (GIS) and Conagra Brands (CAG) have been disappointing and set a "pessimistic tone" for the sector.

RBC's estimates for Campbell's fiscal Q2 are roughly in line with consensus, but the firm sees potential downside risk given uncertainty around consumer trends. It also highlighted a disconnect between Campbell's management and investors regarding the broader industry outlook, which it believes has weighed on the stock's performance.

Campbell's shares have continued to underperform, trading at a roughly 20% discount to the packaged food peer group despite historically trading in line. RBC sees this discount as warranted due to ongoing risks and noted that short interest remains near two-year highs.

Campbell's is slated to release fiscal Q2 results on Wednesday.

RBC has a sector perform rating on Campbell's, with a $51 price target.

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