Stock Analysis Hormel Foods

The following company analysis is about my latest investment Hormel Foods, one of the recently most popular investment in dividend investing community in the last couple of months. In the last couple of months Hormel Foods experienced a decent drop in its share and like almost every stock in the consumer sector under performed the market.

Company Overview

Hormel Foods is based in Austin, Minn. and is a multinational manufacturer and marketer of consumer-branded food and meat products, many of which are among the best known and trusted in the food industry. The company enjoys a strong reputation among consumers, retail grocers, foodservice and industrial customers for products highly regarded for quality, taste, nutrition, convenience and value. The company was founded in 1891 under the name George A. Hormel & Company and changed its name to Hormel Foods Corporation in 1995. Hormel Foods Corporation is based in Austin, Minnesota.

Stock analysis

Currently HRL is priced at 30.74 USD per share, which is 30.3% below its 5 year high of 44.09 USD in October last year. The drop in the share price is again one of typical market overreactions, driven by fears of lower margins etc.. But nevertheless you always should keep in that this company will stay profitable, even they will lose some of its current margin.

Current Valuation

As you can see the current ratios are besides of the Price/Sales ratio all below the 5 year average. Using my current method to calculate a fair share price based on the 5 year average numbers, I would get a price of 31.71 USD so from that perspective the current level of the share is fair. If I use the Market Fair Value Ratio according to morningstar I would get a price  of 31.05 USD.

The outlook for HRL is expecting a 5-Year growth of 6.2% which results in a forward P/E ratio of 18.1. In my further analysis I also included a simple calculation with the following Graham Formula:

,

The result was a price of 33.02 USD.

So all in all you can say that Hormel Foods is fairly priced and currently definitely a stock to watch in the next couple of weeks.

Dividend Overview

HRL has an impressive dividend history, the company has increased its dividend for now 50 years in a row. The average growth in the last 5 years was at 20.5%. Looking at the current pay ratio of 40.6% leaves as well enough room for future growth. In the table below you can see my dividend growth expectations for the next  years.

 

Financial Health

So let’s finally have a look at the most important part the financial situation of HRL. Well to be honest there are not a lot of companies out there with such an impressive balance sheet. Just to highlight some of the key ratios:

  • Equity Ratio: 72.98%
  • Debt to Equity: 0.05

This just means HRL is almost debt free.

Conclusion

I think the latest decline of the share price is a good opportunity to buy HRL at its current price level. What is also a reason for me to buy US stocks is the currently strong EUR, the exchange is currently almost 1.20 USD which is not really reasonable. It is mostly affected by the mistrust in Mr. Trump and I think will not be permanently. The next point is the dividend yield of currently 2.21% is very high for such a stock like HRL. All in all for Hormel Foods looks like a good investment currently, when considering the financial health, the dividend history and the current share price.

What do you think about HRL? Would you buy it at its current price or do you even have it already in your portfolio?

Disclosure: Long HRL

I do not recommend any decision to the reader or any user, please consult your own research. Thank you for your understanding!

6 Comments

  1. Hi Robot,

    yes I think so too. The dividend is safe, the financial situation as well and pay out ratio leaves enough room for future growth.

  2. Great analysis! Lanny just purchased shares of Hormel too, so I have heard a lot about the company over the last few weeks haha The metrics are great at the moment, so they are definitely going to be on my watch list going forward.

    Take care,

    Bert

  3. I am a big fan of HRL. Own a little in my portfolio. I would love to add more to lower my cost basis. HRL has been getting a lot of attention in the past few months from the community which is great. Usually it is overlooked because of the low yield, even though it has a high dividend growth rate to make up for it. Long term it should be a great hold. Thanks for the write-up.

    • Hi,

      thank you for the comment. Yes you are HRL is mostly overlooked because of the relatively low yield but the growth on the other side will be much higher.

      Cheers

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