Stock (Symbol) |
Hormel (HRL) |
Stock Price |
$43 |
Sector |
| Food & Necessities |
Data is as of |
| February 29, 2016 |
Expected to Report |
| May 18 – May 23 |
Company Description |
 Hormel Foods Corporation is a multinational manufacturer and marketer of food and meat products. The Company has five segments: Grocery Products, which consists of the processing, marketing and sale of shelf-stable food products sold primarily in the retail market; Refrigerated Foods, which consists of the processing, marketing and sale of branded and unbranded pork and beef products for retail, foodservice and fresh product customers; Jennie-O Turkey Store, which consists of the processing, marketing and sale of branded and unbranded turkey products for retail, foodservice and fresh product customers; Specialty Foods, which consists of the packaging and sale of private label shelf stable products, nutritional products, sugar and condiments to industrial, retail and foodservice customers, and International & Other, which includes the Hormel Foods International operating segment, which manufactures, markets and sells the Company products internationally. Source: Thomson Financial |
Sharek’s Take |
 Celebrating its 125th year in business, Hormel (HRL) stock continues climb to new heights. 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 it 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, Muscle Milk in 2014 and Applegate — the #1 brand in natural and organic prepared meats — in 2015. Hormel has a top rating of safety from Value Line, has increased paid a dividend for 88 years, increased it the past 50 years, and has delivered year-over-year profit growth in 27 of the past 30 years. Today management strives for 5% sales growth and 10% profit growth each year. HRL has an estimated long-term growth rate of 15% a year in addition to a 1% yield for an estimated total return of 16% per year. Investors have been flocking to safety during a volatile 2016, pushing consumer stocks like HRL higher, and I feel this stock will correct as the sector is overheated. Also, the P/E of 28 is much higher than the 16 to 17 the stock traded for in recent years. I will take profits in Hormel, and sell half my position. |
One Year Chart |
 Last qtr profits increased 23% as sales fell 4% due to lower pork prices for products such as Spam which help profits, but hamper sales. HRL delivered a profit of $0.43, beating the street by 7 cents. The company had beaten by 4 cents, 1 cent, and 3 cents the prior three qtrs. 2016 Annual Profit Estimates rose from $1.46 to $1.56 this qtr. Looking ahead, analysts predict 9%, 25%, 11% and 5% profit growth the next 4 qtrs. Although the stock doesn’t look that high here, the P/E of 28 is. Check the ten-year chart for a better view of the parabolic move. |
Fair Value |
 Last qtr I took my Fair Value P/E from 20 to 23, and still the stock’s blown past it. Turmoil in the stock market got extreme during February with investors flocking to safe assets like Treasuries, Gold and food stocks like Hormel. But now that fear has subsided, I feel money will go back into riskier growth stocks. My 2016 Fair Value on HRL is currently $36, which implies downside of 16%. |
Bottom Line |
 Hormel’s ten-year chart looks dangerous as the stock looks to have made a parabolic move higher. This is somewhat reminiscent of tech stocks in late 1999, and although its unlikely HRL will crash that hard, I and could envision it correcting into the $30s. I’m going against the herd and selling when other investors are buying. Tomorrow I will sell half my position in this stock. HRL ranks 23rd of 34 stocks in the Conservative Growth Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 23 of 34 |
