Hormel Foods (HRL) Stock Analysis
Hormel Foods Dividend
The Hormel Foods dividend has been paid continuously since 1928 and increased for 51 consecutive years; qualifying the company as a Dividend King, Dividend Aristocrat, and Dividend Champion.
Current Dividend: $0.68
Dividend Yield: 2.1%
Cash Dividend Payout Ratio: 52%
Market Capitalization: 17 B
Enterprise Value: 17 B
Sector: Consumer Defensive
Industry: Packaged Foods
Hormel Foods (HRL) is engaged in the manufacturing, marketing, and distribution of meat and food products, primarily pork and turkey, in the United States (95%) and internationally. The company has a balanced business model which reports in five business segments: Grocery Products, Jennie-O Turkey Store, Specialty Foods, Refrigerated Foods, and International & Other.
Hormel brands include Hormel Chili, Dinty Moore stews, SPAM, Valley Fresh chunk chicken, Hormel Compleats meals, Stagg chili, Wholly Guacamole, SKIPPY peanut butter, Hormel Black Label bacon, Lloyd’s barbecue products, Hormel party trays, Hormel Natural Choice meats, Farmer John products, and Jennie-O Turkey products.
In 2015 Hormel purchased Applegate Farms. This provides the company a high growth brand in the natural and organic products category. Applegate is the #1 brand in organic and natural prepared meats. Over 2/3 of Hormel’s 2016 sales came from perishable and poultry items, with the remainder from shelf-stable products (center of the store).
Dividend Analyzer Checklist
(updated June 2017)
Dividend Safety Score (22/33 points)
Dividend Per Share (ttm): $0.63
Dividend Payout Ratio (ttm): 34%
Dividend Per Share (10 Year Growth): 15%
Cash From Operations (CFO) Per Share (ttm): $1.65
CFO Dividend Coverage (CFO / DPS): 2.6 (2/6 points)
Free Cash Flow (FCF) Per Share (ttm): $1.17
FCF Dividend Coverage (FCF / DPS): 1.9 (4/6 points)
Net Financial Debt: $-360 M
Total Assets: $6366 M
Net Financial Debt / Total Assets: -6% (11/12 points)
Net Financial Debt to EBITDA (ttm): 19%
Total Liabilities to Assets Ratio (Qtr.): 28%
Piotroski Score (1-9) (TTM): (5/9 points)
Profitability & Growth Score (25/33 points)
Revenue (10 Year Growth) *CAGR > 4.14%: 5.2% (4/4 points)
EPS Basic Cont. Operations (10 Year Growth) CAGR > 4.14%: 12.4% (4/4 points)
Cash From Operations (10 Year Growth) CAGR > 4.14%: 11.8% (6/6 points)
Operating Earnings Yield (ttm): 7.2% (3/7 points)
Net Income (ttm): $890 M
Gross Profit (ttm): $2152 M
Total Assets: $6366 M
Gross Profitability Ratio = GP / Total Assets: 34% (8/12 points)
Cash Return On Invested Capital (CROIC)(tttm): 14%
Return on Invested Capital (ROIC): 19%
Return on Invested Capital (ROIC) (5 Year Median): 16%
Return on Invested Capital (ROIC) (10 Year Median): 16%
Valuation Score (13/34 points)
Free Cash Flow Yield (ttm): 3.4% (4/9 points)
EV to EBIT (ttm): 13.2 (5/9 points)
EV to EBITDA (ttm): 12.0 (4/9 points)
PE10: 37.6 (0/7 points)
Price to Sales Ratio (ttm): 1.9
Price to Book Value (ttm): 4.0
Price to Earnings Ratio (P/E) (ttm): 20.7
TOTAL POINTS – (60/100) (50 is an average score)
*Compound Annual Growth Rate (CAGR)
**A Compound Annual Growth Rate of 4.14% = a 50% gain over 10 years.
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Hormel Foods has the management expertise and balance sheet to grow the company organically and through acquisitions. The company has built a portfolio of strong brands in a mixture of segments.
The increasing demand for protein rich foods means Hormel Foods is on the right side of a powerful trend. Hormel’s competitive advantages include powerful brands and economies of scale which allows the company to spread costs over a large base. In addition its size gives the company purchasing power when contracting with suppliers.
Hormel Foods still has many center of the store products where competition is tough. This means overall margins are less than the value-added products the company has been adding to its product portfolio.
The biggest opportunity of Hormel Foods is international growth. The company is expanding its reach by marketing its popular brands in other countries including: Canada, Australia, Mexico, Japan, and England.
The growing natural and organic trends provides Hormel Foods the opportunity to expand their health oriented brands. Existing distribution and marketing channels give the company synergies and efficiencies that other companies can’t match.
The reliance on third party suppliers leaves the company vulnerable to disruptions outside their control (i.e. livestock diseases, input costs, global trade, etc.).
Hormel is in a fierce battle with smaller innovative companies for center of the stock shelf space. The company must produce new products to keep its valuable shelf space position.
(updated June 2017)
Hormel Foods (HRL) is ranked #49 (out of 252) overall and #11 (out of 34) in the Consumer Defensive Sector by the Dividend Analyzer.
Type of Investor / Recommendation
Large Diversified Dividend Portfolios / Should Be Considered
Looking For Exposure to Consumer Defensive Sector / Can Be Considered
Deep Value Investors / Watchlist
Portfolio Position Disclosures:
DVB Foundation Portfolio: None
DVB Dividend Growth Portfolio: None
DVB High Income Portfolio: None
Arbor Asset Allocation Model Portfolio (AAAMP): None
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