Shares of Hormel (HRL) muscled to new highs last month — during a terrible stock market — on the back of good news from its new Muscle Milk line, which the company acquired a year ago.
Hormel was established in 1891 as a producer of fresh pork products, and in the 1920s distributed its products on vans driven by salesmen. In 1926 Hormel developed the world’s first canned ham, and then went public in 1928. In the 1930s Dinty Moore beef stew, Hormel Chili and SPAM were invented. By 1959 the one-billionth can of SPAM, which consists of just pork and water, was produced. Turkey processor Jennie-O was acquired in 1986, Lloyd’s BBQ in 2005, Skippy peanut butter in 2013, and more recently Muscle Milk last year and then Applegate, the #1 brand in natural and organic prepared meats, this year. I feel Muscle Milk helped push the stock to new highs last month. Muscle Milk’s ready-to-drink products grew in the high single digits last qtr, and the powder items grew at a double-digit rate. Here’s the sales and profit gains by all divisions last qtr:
- Refrigerated foods (Hormel Pepperoni, Bacon & Lloyd’s BBQ): Sales -11%, Profit +9%
- Jennie-O Turkey Store (ground turkey, turkey bacon, turkey burgers): Sales -12%, Profit -45%
- Grocery Products (SPAM, Dinty Moore, SPAM): Sales +8%, Profit +57%
- Specialty Foods (Creatine powders & drinks incl. Muscle Milk): Sales +31%, Profit +79%
- International & Other: Sales -6%, Profit +3%
Overall sales were down 4% for the qtr, with profit up 10%. The company’s Jennie-O division was adversely affected by the avian flu, in which it lost 20% of its birds. Some of the costs were reimbursed by the government. On the other hand pork prices are low and that’s helping profits in the Refrigerated and Grocery divisions.
Ten Year Chart
Hormel Foods is one of safest stocks investors aren’t aware of. The stock has paid a dividend for 87 straight years and has upped the dividend 48 consecutive years. It earns a top rating of 1 for safety from Value Line and has a Beta of less than 1, which means HRL is less volatile than the stock market.
Analysts predict profits will jump 17% in 2015, and the company just increased these estimates. Last qtr the company made a profit of $0.54 a share and paid out $0.25 in dividends.
Profit History
HRL has an estimated long-term growth rate of 11% a year and pays a dividend of almost 2%. With the company’s long history of growth, I feel the stock is worth 20x earnings. When I compiled this data on 8/21, the P/E was 24. So HRL is high. Note in the Profit History table HRL regularly sold for 16x earnings.
Sharek’s Take
Hormel is a conservative stock that investors can count on during these turbulent times. I feel you can buy and hold this stock for years, decades, and maybe generations. It could provide investors with double-digit returns in addition to an ever-increasing dividend. It has a stable of consistent brands as well as new ones in growing areas like workout drinks and organic meats. The only issue I have is HRL’s a little high right now. If I didn’t already own Hormel, I’d be more inclined to buy in if the stock got down to the low-$50s.
View the One Year Chart here. View the Earnings Table here.
