Hormel Foods (HRL) Stock Analysis

Hormel Foods (HRL) Intrinsic Value – Margin of Safety Analysis            

(update December 2024)

Normalized Diluted Earnings Per Share (TTM): $1.47
Free Cash Flow Per Share (TTM): $1.84
Cash Flow From Operations (CFO) Per Share (TTM): $2.31

Estimated Intrinsic Value: $35

Target Buy Price Based on Required Margin of Safety =  $25
(Required Margin of Safety Based On Risk Stability Grade:

A = 0%, B = 20%, C = 40%, D = 60%, F = 80%)

Target SELL Price Based on Estimated Intrinsic Value = $40
(Allow Overvaluation Adjusted by Risk Stability Grade:

A = 40%, B = 25%, C = 15%, D = 5%, F = 0%)

Risk / Stability Grade: C

A grade indicates a quality company with a strong balance sheet, high earnings quality, and a positive business environment. These stocks require the slimmest margin of safety within the stock universe.

B grade indicates a company with a good balance sheet, good earning quality, and a stable business environment. The margin of safety required should be greater than stocks with an A grade but less than the average stock.

C grade indicates a company with a sufficient balance sheet, at least average earnings quality, and a reasonably stable business environment. The margin of safety required is greater than A & B stocks, but less than D & F stocks.

D grade indicates a company in good standing but has issues that could affect its stability and long term risks. D rated stocks should require a large margin of safety when purchased.

F grade indicates a company with significant issues that are currently affecting its stability and long term risks. Require an extremely large margin of safety for F rated stocks when purchased.

Financial Risk Grade: B

A grade indicates an extremely low probability of a dividend cut. This rating is reserved for companies with strong balance sheets and/or excellent dividend histories.

B grade indicates a very low probability for a dividend cut.

C grade indicates a low probability for a dividend cut and/or average safety risk.

D grade indicates there are issues that should be considered concerning future dividend payments.

F grade indicates serious dividend safety risks. Investors should complete comprehensive due diligence before investing.

Business Quality Grade: C

A grade indicates earnings quality is high or far above average.

B grade indicates earnings quality is good and/or above average.

C grade indicates earnings quality is acceptable or average.

D grade indicates earnings quality is poor and requires thoughtful due diligence.

F grade indicates the quality of the earnings is poor or far below average requiring serious due diligence.

Earnings Report: 10/31/24

Company Description

Sector: Consumer Defensive
Industry: Packaged Foods

Hormel Foods is a protein-focused branded food company. Its brands include its namesake Hormel, Spam, Jennie-O, Dinty Moore, Applegate, Skippy, and Muscle Milk.

The vast majority of the company’s revenue is U.S.-based: 63% U.S. retail, 28% U.S. food service, 7% international, and 2% other. By product type, 19% of revenue is shelf-stable foods, 19% is poultry, 56% is other perishable food, and 6% is other shelf-stable, primarily nutritional products.

The company holds the number-one market position in turkey, shelf-stable meat, pepperoni, natural/organic deli meat, guacamole, and canned stew and the number-two position in bacon, peanut butter, and protein beverages.

SWOT Analysis

Strengths

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.

Weaknesses

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.

Opportunities

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.

Threats

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.

Disclaimer:
While Arbor Investment Planner has used reasonable efforts to obtain information from reliable sources, we make no representations or warranties as to the accuracy, reliability, or completeness of third-party information presented herein. The sole purpose of this analysis is information. Nothing presented herein is, or is intended to constitute investment advice. Consult your financial advisor before making investment decisions.