Stock (Symbol) |
Hormel (HRL) |
Stock Price |
$37 |
Sector |
| Food & Necessities |
Data is as of |
| October 10, 2016 |
Expected to Report |
| Nov 22 – 28 |
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 |
The way it stands now, Hormel’s profit growth is expected to be next-to-nothing the next two years. Right now, analysts predict 2017 profits to climb just 2%. The company expects sales and profit growth in 2017, but won’t give us more info until next qtr’s conference call. Yet management did state long-term goals of 5% sales growth and 10% profit growth each year “continue to be appropriate”. 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 is a very safe stock has 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. I have faith management will be raising estimates next qrt. But I think it’s tough the buy the stock before nxt qtr as the current P/E of 22 is higher than the ten-year norm. Also, 2018 profits are “estimated” to grow just 2%. In the end, if I put a Fair Value of 22x earnings on HRL that would mean this $37 stock has 2017 and 2018 Fair Values of $37. |
One Year Chart |
 Profits have been growing climbing recently due to the Jennie-O turkey division which had profits surge 59% on a 20% sales increase and accounted for 20% of company profits. Also, pork operating margins were high this year due to lots of piggies, so expect slower growth next year. Qtrly profit Estimates for the next 4 qtrs are 19% (this just got upped from 11%), 2%, 2% and 6%. This would put the slower growth on track for Q1. But notice how the company upped next qtr’s estimate. Perhaps that will happen again. |
Fair Value |
 This stock had a P/E around 16-17 earlier in the decade. Now some great acquisitions have kicked both profit growth and the P/E up a notch. The big picture here is the Fair Value profit estimates of $1.63, $1.67 and $1.70. We need earnings growth for stock growth. |
Bottom Line |
 Hormel management is having analysts keep profit estimates in check until the company reports earnings next qtr. If that is the case this stock could stay around $37 for a while. But in the end they’ve been doing it a while (management) and point out HRL is about to have profit growth in 28 of the last 31 years. But I think until we get more clarity on 2017 estimates this stock could be held in check. Hormel stock is high quality with an Est LTG of 10% a year plus a 1.5% dividend. It ranks 33rd of 35 stocks in the Conservative Growth Portfolio Power Rankings. |
Power Rankings |
Growth Stock Portfolio
N/AAggressive Growth Portfolio N/AConservative Stock Portfolio 33 of 35 |
